States Continue Quest for Simple Sales Tax: Watching Millions in Revenues Slip Away on Internet Sales, States Have to Simplify and Coordinate Their Various Tax Systems with an Acceptable, Universal Way to Collect Sales Taxes
Tubbesing, Carl, Williams, Graham, State Legislatures
Forty-four state legislators, revenue officials and retailers met in Salt Lake city, Utah, late last November to take the next step in an unprecedented effort to simplify state sales tax systems.
The occasion was the first meeting of the first 23 states to pass model streamlined sales tax laws. Their immediate task in Salt Lake City was to adopt operating rules, elect officers and agree to a work plan. Their ambitious goal over the next few months is to approve a final interstate agreement that legislatures will consider beginning as early as this fall.
"The progress we have made is simply extraordinary," notes Tennessee Representative Matt Kisber, one of the key figures in the effort. "There are now 28 states with over half of the country's population engaged in these talks. Of course, it's too early to gush about how far we've come. We are now down to some of the hardest issues."
The streamlined sales tax movement is the response of state officials and members of the private sector to the billions of dollars of Internet sales that occur each year. The Supreme Court ruled in two cases--National Bellas Hess in 1967 and North Dakota vs. Quill in 1992-- that a state cannot force an out-of-state retailer to collect sales tax on purchases shipped into that state. The court acknowledged that the buyer owes the tax; however, the company making the sale is not obligated to collect it. Translation: A teacher in Kearney, Neb., goes online to buy a pair of gloves from Land's End in Wisconsin. The teacher owes the 6 percent sales tax to Nebraska, but neither the Legislature nor the state's revenue department can force Land's End to collect it. Because this teacher and millions of other consumers do not "'fess up" and remit the money, state and local governments lost as much as $13 billion last year in uncollected sales and use taxes--a number that is expected to triple by 2006. And retailers who c ollect sales taxes feel put upon because they are forced to add it to a consumer's bill while out-of-state competitors are not.
The court left open the possibility of reversing itself if state sales tax systems were changed to meet certain conditions. The key condition? Eliminating the administrative burden that most state and local sales tax systems impose on out-of state retailers. The court reasoned that it is an undue burden on interstate commerce for remote sellers to keep up with the various sales tax structures of 46 states and the thousands of local jurisdictions that have these taxes. State legislators, governors and revenue officials view simplification as a road map for convincing either Congress or the courts to overturn the two decisions.
They have taken the rulings as an invitation to streamline and simplify state and local sales tax systems--to make them less complicated and less burdensome for consumers and retailers. The Salt Lake City meeting was the culmination of the first phase and the beginning of the next stage in this long-term effort.
Work began in late 1998 when the executive committee of the National Conference of State Legislatures created a task force on State and Local Taxation of Telecommunications and Electronic Commerce. A little over a year later, the task force endorsed model legislation that directed state revenue departments to enter into multistate discussions to develop a simpler and more uniform system of sales and use tax collection. Thirty-two states formally joined these discussions, called the Streamlined Sales Tax Project (SSTP). In January 2001, SSTP and the NCSL task force endorsed different, but complementary versions of a model sales tax simplification act. Wyoming and Utah, two months later, became the first to pass versions of the model act. At press time, 28 states had joined them and are now participating in the next phase of the simplification process that began with the meeting in Salt Lake City. …