Hidden costs of the SSTP.

• Author: Greene, Jeff
• Position: Streamlined sales tax project

In the states' efforts to capture sales tax on Internet and catalog sales--known as the Streamlined Sales Tax Project (SSTP)--a number of new definitions have been adopted by member states. The purpose is to promote uniformity and to simplify the private administration of collecting public revenues. Several states have taken the opportunity presented by these new definitions to expand their tax base, but in most cases have never mentioned that the new laws implementing the SSTP have increased taxes.

Under the SSTP's "Taxability Matrix" (see www.streamlined salestax.org/taxability%20matrix%2 03-5-04.pdf), the term "sales price" includes the "total consideration ... for which personal property or services are sold, leased, or rented ..." and gives the states the option of including the following as part of the price:

* Charges by the seller for services to complete the sale;

* Delivery charges;

* Installation charges;

* Value of exempt items when bundled with taxable goods or services; and

* Credit for a trade-in.

Tennessee

Prior to adopting the SSTP definitions, Tennessee applied sales tax to separately stated charges for freight only when the risk of loss passed to the buyer at the destination. For example, it did not tax the trucking of crushed stone if the risk of loss for the stone passed to the purchaser at the quarry. In adopting the SSTP definitions, the state faced a dilemma: under the SSTP definition of sales price, there is no leeway to allow an exemption for delivery charges depending on the risk of loss; thus, Tennessee had to choose whether to exempt or tax all delivery charges. The state chose to tax all delivery charges.

After the SSTP definitions become effective in Tennessee (July 1, 2005), the cost of crushed stone will increase:

Before After SSTP SSTP Cost of stone 300.00 $300.00 Tax on stone at 8.25% 24.75 24.75 Trucking 200.00 200.00 Tax on trucking 0 16.50 Total cost $524.75 $541.25 Not only will the cost of construction increase in Tennessee, but contractors will possibly see an increase in costs not reflected in their bids. The law has no provision for contractors to recover the increased tax paid on contracts signed before the tax increase, but completed after the new law's effective date. Although the state is making changes to enable contractors to recover the increased tax to assure compliance with the SSTP provisions, the SSTP implementing law does not contain an increased tax recovery provision for contractors...