States continue quest for simple sales tax: watching millions in revenues slip away on Internet sales, states have to simplify and coordinate their various tax systems with an acceptable, universal way to collect sales taxes.

• Author: Tubbesing, Carl

Forty-four state legislators, revenue officials and retailers met in Salt Lake city, Utah, late last November to take the next step in an unprecedented effort to simplify state sales tax systems.

The occasion was the first meeting of the first 23 states to pass model streamlined sales tax laws. Their immediate task in Salt Lake City was to adopt operating rules, elect officers and agree to a work plan. Their ambitious goal over the next few months is to approve a final interstate agreement that legislatures will consider beginning as early as this fall.

"The progress we have made is simply extraordinary," notes Tennessee Representative Matt Kisber, one of the key figures in the effort. "There are now 28 states with over half of the country's population engaged in these talks. Of course, it's too early to gush about how far we've come. We are now down to some of the hardest issues."

The streamlined sales tax movement is the response of state officials and members of the private sector to the billions of dollars of Internet sales that occur each year. The Supreme Court ruled in two cases--National Bellas Hess in 1967 and North Dakota vs. Quill in 1992-- that a state cannot force an out-of-state retailer to collect sales tax on purchases shipped into that state. The court acknowledged that the buyer owes the tax; however, the company making the sale is not obligated to collect it. Translation: A teacher in Kearney, Neb., goes online to buy a pair of gloves from Land's End in Wisconsin. The teacher owes the 6 percent sales tax to Nebraska, but neither the Legislature nor the state's revenue department can force Land's End to collect it. Because this teacher and millions of other consumers do not "'fess up" and remit the money, state and local governments lost as much as $13 billion last year in uncollected sales and use taxes--a number that is expected to triple by 2006. And retailers who c ollect sales taxes feel put upon because they are forced to add it to a consumer's bill while out-of-state competitors are not.

The court left open the possibility of reversing itself if state sales tax systems were changed to meet certain conditions. The key condition? Eliminating the administrative burden that most state and local sales tax systems impose on out-of state retailers. The court reasoned that it is an undue burden on interstate commerce for remote sellers to keep up with the various sales tax structures of 46 states and the thousands of local...