Walking the 2001 Political Tightrope.

• Author: Rose, Gene

State legislatures will be tackling some tough issues in a new, very balanced, political environment.

The 2000 elections have put state legislatures on a political tightrope.

Never before has the political landscape been so balanced. Republicans control 17 state legislatures, Democrats 16, and the remaining 16 bicameral legislatures are split. As for the number of state legislators by party, Democrats hold only a 4 percent lead over the GOP.

This doesn't mean a middle-of-the-road agenda, though. As leaders of innovative public policy over the last quarter century, state legislatures still are poised to take daring steps to reach their goals.

Here is our annual look at some of the key issues state legislatures are likely to address in 2001.

STREAMLINED SALES TAX PROJECT

A discussion about tax reform typically generates passionate discourse in America. The latest movement sweeping the country, while historic in nature, is noted, however, for its public ambivalence.

For the first time since the Bellas Hess and Quill decisions--where the U.S. Supreme Court prohibited states from requiring out-of-state retailers to collect sales and use tax--states are serious about bringing substantial uniformity and simplicity to this complex and burdensome tax collection system. For example, at present a retailer doing business across the country would have to know the sales and use tax rules in as many as 7,500 jurisdictions. To date, at least 29 states have agreed to take an active role in the Streamlined Sales Tax Project (SSTP), an effort to simplify sales and use tax collection and administration. Another dozen states are participating as observers.

"The fact that 29 states are actively participating in discussions in trying to agree on the standard definitions and approaches shows the high degree of commitment of the executive and legislative branches of government," says Illinois Senator Steve Rasuchenberger, co-chair of NCSL's Task Force on State and Local Taxation of Telecommunications and Electronic Commerce.

Tennessee Representative Matt Kisber, co-chair of the task force says now is the time for states to take action. "The revenue pressures facing state governments in many ways reflect policy embodied in the economy of yesterday. The streamlined sales tax project is an effort to use the new technologies, along with a cooperative effort among the states to bring the sales tax into the 21st century. It makes common sense if we can find a way to reduce the burden of compliance on taxpayers and make it easier to administer for state governments. It will ultimately prove to be a winner for everyone."

States are working quickly to find a solution as more and more sales have shifted from traditional Main Street retail outlets to remote sales over the Internet.

Forty-five states and the District of Columbia depend on sales tax as a revenue source, and there is growing concern that those tax bases will erode as consumer preference for e-commerce grows. Additionally, Congress--in its efforts to extend the moratorium on state and local taxes on Internet access--has signaled that it may be interested in addressing the states' sales and use tax collections systems. Some congressional proposals would go so far as to define state tax policy and place onerous mandates on states before requiring out-of-state vendors to collect a sales tax.

As a result, states are recognizing that the best solution to the problem is developing a simplified sales and use tax system. They currently have multiple and confusing definitions of common items of food, clothing and others. For example, a Twix bar with chocolate and caramel may be considered a candy in one state and a cookie in another. For the manufacturer and the retailer, the distinction is significant in its tax implications.

NCSL's task force, which has been working on the issue for the past two years, is providing advice and oversight to the SSTP in drafting an interstate agreement that will be incorporated in model legislation several states are expected to consider in 2001. In addition, Kansas, Michigan, North Carolina and Wisconsin have agreed to undertake a pilot project to test technology-based models for implementing...