RealTime IT News

More States Step Toward 'Net Tax

Just in time for the holiday shopping season, 18 states are preparing to clear the path this weekend for imposing online sales taxes.

Clearing and collecting, however, are entirely different matters.

On Saturday, the Streamlined Sales Tax Project (SSTP) is expected to organize into a legal entity called the Streamlined Sales Tax Governing Board with 18 founding states. The 18 states admitted to the group represent 25.3 percent of the U.S. population.

The new group has certified software and service providers for retailers to use to charge and collect sales taxes, although retailers in the 18 states are under no obligation to collect the taxes.

For that to happen, Congress has to pass legislation certifying that the states have actually simplified their sales tax structures in order to satisfy a 1992 Supreme Court ruling.

The 1992 decision said that, while buyers legally owe sales taxes on Internet and catalogue sales, the current patchwork of more than 7,500 taxing jurisdictions across the country is too complex and burdensome for online retailers to charge and collect the tax.

To collect the taxes, the court ruled, states have to simplify their sales tax structures. To that end, states began the process of simplifying their sales tax structure five years ago through SSTP.

Under the rules of the multi-state compact, the simplified sales tax system cannot take effect until at least 10 states representing 20 percent of the total population are in compliance with the agreement.

With this legislative year almost over and next year bringing mid-term elections, lawmakers are not likely to pass the enabling legislation any time soon.

Nevertheless, Joe Huddleston, executive director of the Multistate Tax Commission, told internetnews.com the formalization of the Streamlined Sales and Use Tax Agreement is a "substantial first step. [Saturday] is the kickoff date for streamlining. It begins the operational function of the SSTP."

The 18 states preparing to join the group are Arkansas, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, New Jersey, North Carolina, North Dakota, Ohio, Oklahoma, Tennessee, South Dakota, Utah, West Virginia and Wyoming.

"The taxability of these sales has never been in doubt," Huddleston said. "But, I don't think anyone is expecting a real rush of retailers to start charging sales taxes [on Internet sales]."

Huddleston added, "Certainly, some retailers will start collecting the tax."

Additionally some online retailers are already collecting sales taxes. While the Supreme Court dismissed efforts to collect taxes from out-of-state sales, it also ruled states can require sellers that have a physical presence or "nexus" in the same state as the consumer to collect the taxes.

States have long coveted the prospect of collecting sales taxes on both Internet and catalogue purchases. Numbers as high $20 billion a year are bandied about as the potential windfall for cash-strapped states.