Streamlined sales tax: debate continues on MPU purchases and the digital goods definition.

• Author: McGahan, Sarah
• Position: Multiple points of use

A year ago, the Streamlined Sales and Use Tax Agreement (SSUTA) developed under the Streamlined Sales Tax Project (SSTP) became effective, when at least 10 states encompassing at least 20% of the U.S. population (based on the 2000 Federal census) modified their sales and use tax provisions and procedures to conform to it. The SSUTA represents years of effort by states and the business community, working together, to simplify and modernize sales and use tax laws and administration. Twenty-one states have enacted legislation to conform.

Currently, 13 states are considered "full member" states (i.e., their laws, rules, regulations and policies are currently in substantial compliance with the SSUTA (although there is an annual re-certification requirement)); these are Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, New Jersey, North Carolina, North Dakota, Oklahoma, South Dakota and West Virginia. Seven other states (Arkansas, Nevada, Ohio, Tennessee, Vermont, Utah and Wyoming) have "associate member" status; these states either have enacted some, but not all, of the provisions required to be in full compliance with the SSUTA or legislation enacting the required changes is not yet effective. Vermont, which is an associate-member state, and Rhode Island, which is not, expect to become full-member states starting in 2007.

Work in Progress

While these states have enacted legislation conforming (in whole or part) their sales and use tax laws, rules, regulations and policies, the SSUTA itself continues to be a work in progress. The process of developing a model agreement that (1) adheres to the stated goals of simplification and modernization, (2) allows state tax administrators to garner the support of state legislators and (3) provides a framework that the business community can tolerate, has been challenging. On the one hand, the cooperation of state governments and the business community, in working together to create a simplified and uniform sales tax system, has been one of the project's greatest successes. On the other hand, the progress made toward creating a simplified and uniform sales tax system has been hindered by having so many players with such vastly different interests involved in the policymaking process.

In the year since the SSUTA became effective, work has continued on a number of outstanding issues that have plagued the simplification process from its infancy. Two important, and cutting-edge, issues that have been the subject of ongoing recent debate between the State and Local Advisory Council (SLAC) and the Business Advisory Council are the (1) SSUTA's "multiple points of use" (MPU) provisions and (2) potential adoption of a "digital goods" definition.

MPU

The MPU provisions are intended to address how a purchase (such as digital goods, computer software or services), that can and will be used concurrently in more than one taxing jurisdiction, should be sourced to determine the proper remittance of sales and use tax. For example, a purchaser acquires electronically delivered computer software and installs it on a server located in California, while its employees access and use the software from multiple business locations in various jurisdictions. The question is how to "source" the sale of that product (i.e., to which jurisdictions should sales/ use tax be remitted?).The SSUTA currently contains two different MPU provisions (in Section 312).The "current version" of SSUTA Section 312 is effective through Dec. 31, 2007. A "revised version" becomes effective on Jan. 1, 2008; to remain in compliance with the SSUTA, a member state must...