A Streamlined Sales Tax System for the 21st Century.

• Author: Esser, Jeffrey L.

As Internet sales grow, state and local governments are becoming more concerned about the revenue they stand to lose on uncollected sales and use taxes. In the near future, Internet sales are predicted to total several hundred billion dollars per year. The U.S. Supreme Court has upheld the concept that, under current law, companies with no physical presence in a state are not required to collect and remit sales tax. Consequently, burgeoning Internet commerce could result in a plunging revenue picture for state and local governments and preferential treatment for online sellers at the expense of the local economic base.

The U.S. Congress does not seem inclined to assist state and local governments with their sales tax collection problem. In fact, Congress took the opposite position in 1998 with its passage of the Internet Tax Freedom Act, which established a three-year moratorium on the imposition of new state and local taxes. The law also created the Advisory Commission on Electronic Commerce (ACEC) to examine issues relating to all forms of remote commerce and issue recommendations to Congress for action it might take to resolve problems.

ACEC has met three times, with one more meeting scheduled prior to its April 2000 report deadline. At its September 1999 meeting in New York, ACEC called for the submission of proposals designed to simplify the taxation of remote sales according to 18 criteria laid out by the commission. In response, the state and local government organizations submitted a detailed proposal designated Streamlined Sales Tax System for the 21st Century. This proposal, which GFOA endorses, has garnered support from the National Governors' Association, National Conference of State Legislatures, Council of State Governments, International City/County Management Association, National Association of Counties, U.S. Conference of Mayors, and National League of Cities.

This "zero-burden" proposal seeks to simplify the current, complex system of state and local sales tax administration. Recognizing that the current tax system has not kept pace with changes in the U.S. and global economy, the goal of the proposal is to develop an easier, uniform, and fair system, particularly for key users of the system-businesses.

How would the zero-burden system work? Participation in the system would be voluntary and phased in over the next two to five years for participating sellers and states, with a completely unified system to be adopted...