Streamlined sales tax: accomplishments and outlook.

• Author: Haffield, Susan

The vote by the streamlined-sales-tax-implementing states to ratify model sales tax simplification rules in November 2002 was a historic threshold. This achievement could not have been foreseen at the time that the National Tax Association's Telecommunication and Electronic Commerce Project or the Federal Advisory Commission on Electronic Commerce failed to produce a cohesive approach to the dilemma of remote sales tax collections. The implementing states (35 states and the District of Columbia) succeeded in forging an agreement between state legislators and state revenue departments (DORs), with the business community's continual input. The agreement was the result of the hard work of representatives of the state DORs comprising the Streamlined Sales Tax Project (SSTP).

SSTP

Made up of overlapping membership with the implementing states (unlike the implementing states, legislation is not required for SSTP participation), the SSTP ground out the terms of the "Streamlined Sales and Use Tax Agreement" (Agreement) through numerous meetings stretching beyond two years. Its recommendations were generally accompanied by white papers detailing the policy reasons for proposals and a survey of how the member states treated the pertinent issues. The implementing states reviewed the recommendations and adopted them in whole or in part, after considering the political ramifications of each.

This two-tier vetting of sales tax simplification proposals may give the current agreement its greatest strength. At the close of 2000, the SSTP approved an agreement containing many of the current proposal's simplification provisions. However, the National Conference of State Legislatures declined to endorse the agreement, instead recommending its own stripped-down version. This dichotomy immediately sparked fears that the project was unravelling as soon as it began. However, the end of 2001 saw the creation of the implementing states, setting the stage for a compromise between the technical simplification provisions drafted by the state DORs and the state legislatures' pragmatism.

Adding to the current proposal's strength is the business community's involvement. While businesses have not had a veto power, the SSTP workgroups are generally an open forum well attended by business interests. The state delegations to the implementing states included several business representatives, including the tax counsel of the Council on State Taxation (COST).

One of the Agreement's weaknesses (which, in fairness, would be inherent in any model legislation attempting to simplify state sales and use tax administration) is its lack of comprehensiveness. For example, direct marketers have been promoting a single rate per state for years. Although the Agreement requires a single rate at the state level, it allows each local jurisdiction to impose a single rate as well. Further, states with complex local tax structures (e.g., Colorado) have not been participating. In addition, the audit protection afforded to sellers for tax collection errors does not extend to purchasers who pay an incorrect amount of tax billed. Meanwhile, one of the Agreement's centerpieces is a "taxability matrix" intended to guide sellers and third-party "certified service providers" in deciding whether to charge tax.

This approach was selected by the states after they determined that it would be difficult (if not impossible) to certify each individual seller's system. The completeness of any model sales tax legislation will always remain a question, as it is unknown how the states will interpret the model...