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

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 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.

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