The streamlined sales tax project.

• Author: Gates, Virginia A.
• Position: State & Local Taxes

Many states are working together on the Streamlined Sales Tax Project (SSTP) to develop a simplified and uniform system of taxation. The states hope this project will significantly reduce the burden and compliance costs of collecting sales and use tax and simplify the tax rules. The SSTP is focusing on improving sales-and-use-tax administrative systems for both Main Street and out-of-state vendors for all types of commerce. The SSTP's roots are in the work of the Advisory Commission on Electronic Commerce (ACEC). The ACEC was established under the Internet Tax Freedom Act (ITFA), and was charged with conducting a thorough study of the Federal, state, local and international taxation and tariff treatment of Internet transactions.

The nexus standard that governs the current U.S. state and local sales-and-use-tax system was established by the Supreme Court in Quill Corp. v. North Dakota, 504 US 298 (1992). In Quill, the Supreme Court held that the U.S. Constitution's Commerce Clause bars a state from burdening interstate commerce by imposing a sales-or-use-tax collection responsibility on a seller unless the seller has a physical presence in the state. Accordingly, out-of-state sellers that do not have a physical presence in a state can make sales to an instate consumer without responsibility for collecting and remitting sales or use taxes to the taxing jurisdiction.

Today, there are more than 6,000 overlapping state and local jurisdictions that can impose sales and use taxes. Each jurisdiction is constitutionally empowered to determine both the sales-and-use-tax rate that applies within its borders and the transactions taxed. This system has led to an increasingly complicated quagmire of multiple sales-and-use-tax rates, multiple characterizations of the same transaction and multiple audits of the same transaction by multiple authorities.

Sellers are responsible for complying with the sales-and-use-tax regulations of every jurisdiction in which they have a physical presence; the consumer is responsible for remitting sales and use tax, when appropriate, if the seller does not have a physical presence in the consumer's state (and thus is not required to collect sales and use tax). The administrative burden on sellers and consumers has fostered both their witting and unwitting noncompliance, which, in turn, has increased the enforcement burden on states.

SSTP Overview

The purpose of the SSTP is to simplify and modernize sales-and-use-tax collection and administration. Thirty-two states are voting participants in the project, via either legislation, executive orders or similar authorization. In...