Will the push for origin-based sourcing derail SST?

• Author: Nicolas, Karl
• Position: Streamlined sales tax

The main goal of streamlined sales tax (SST) is to simplify sales and use tax collection and administration in such a way that compliance with multiple state sales and use tax regimes will not create an undue burden on interstate commerce. To accomplish this goal, the drafters of the Streamlined Sales and Use Tax Agreement (SSUTA) required uniformity in state and local sales and use tax rules and administration. In addition, the drafters recognized that, for practical purposes, sales should be sourced based on where the taxable property would be used. Indeed, since its inception, the SSUTA has provided for destination-based sourcing of taxable sales, with origin-based sourcing a default method where destination cannot be determined. Specifically, according to Section 310 of the SSUTA, the retail sale of a tangible personal property will be sourced:

1. To the seller's business location, when the product is received by the purchaser there;

2. To the location where receipt by the purchaser (or the purchaser's donee, designated as such by the purchaser) occurs, when the product is not received by the purchaser at the seller's business location;

3. To the location indicated by an address for the purchaser that is avail able from the seller's business records, when the first two scenarios do not apply;

4. To the location indicated by an address for the purchaser obtained during the consummation of the sale, when the first three scenarios do not apply; and

5. Finally, to the location from which tangible personal property was shipped, if none of the previous sourcing rules apply (including instances in which the seller is without sufficient information to apply the previous rules).

For taxable interstate transactions, the concept of destination-based sourcing has not caused significant controversy; most states and businesses recognize the practicality of sourcing sales and collecting tax based on the situs of the purchaser or where the purchased items ultimately will be used. Nevertheless, the effect of destination-based sourcing on local sales and use tax administration has raised significant practical concerns, leading some states to advocate the use of origin-based sourcing for intrastate taxable sales.

In states that provide for the imposition of local sales and use taxes, destination-based sourcing for intrastate sales can create significant burdens for sellers. Namely, smaller businesses that currently collect and remit state sales taxes based on a single rate (as determined by their location) under an origin-based system would be required to determine, collect and remit taxes based on the rates in their customers' localities using a destination-based system. The potential for resulting administrative burden has caused many businesses to petition their state governments to change the rules or to abandon the SST effort altogether.

Utah Responds

Several states that are contemplating membership in SST--most notably Texas...