The Streamlined Sales Tax Project

States may simplify sales and use taxes.
BY NICHOLAS FIORE

iterally thousands of state and local jurisdictions have the right to impose sales and use taxes, and each can determine the tax rate that applies within its borders and the transactions that are subject to tax. Especially for out-of-state vendors, this has meant a quagmire of different rules, varying rates, multiple characterizations and audits of the same transaction by different tax authorities.

Sellers are responsible for complying with the sales and use rules of every jurisdiction in which they have a physical presence. If the seller does not have a physical presence in a state or locality, the consumer is responsible for remitting the appropriate sales and use taxes. Thus, sellers without a physical presence are not required to collect and remit sales and use taxes, and most do not.

For state and local governments and for “Main Street” retailers, this is a problem that likely will grow as e-commerce (and the number of businesses without a physical presence in a given jurisdiction) increases and with the expiration of the Internet Tax Freedom Act.

A more efficient sales tax system. The streamlined sales tax project (SSTP) is an effort by state governments to simplify and modernize sales and use taxes and their collection that especially benefits retailers of goods and services in multiple states.

The SSTP is an attempt to accomplish these goals by establishing

Uniform definitions for products and services in the tax base. Currently, jurisdictions may differ as to whether specific products and services are included in (or excluded from) a category or definition of items subject to tax. Under the SSTP, individual states will continue to choose what is taxable and/or exempt. However, there will be common definitions for key items in the tax base, and states will not be able to exclude an item listed within a definition.

Simplified exemptions administration. Sellers no longer would have to identify and verify buyers exempt from sales tax (or have any liability for uncollected taxes). Purchasers would be responsible for incorrect exemptions claimed. In addition, there would be a standard form for claiming exemptions electronically.

Rate simplification and state-level administration. States would be responsible for administering all state and local taxes and for distributing local taxes to local governments.

In addition, localities and states would share the same tax base, with no more than one sales and/or use tax per locality. There also would be limits on the number of local tax rate changes that could be made.

Uniform sourcing rules. The states would have uniform rules for determining which state is the “source” of a sale. This will help resolve the issue of which jurisdiction has the right to tax a sale.

When the location of receipt is not known, sales would be sourced to a purchaser’s address available from business records or transactions. When a customer’s location is not disclosed, the sale may be sourced from where tangible property was shipped or digital goods first were available for transmission.

Centralized registration for sellers. Rather than have multistate sellers register in each state in which they must collect tax (as is required currently), one online registration would be effective for all states. No signature would be required, and an agent could register a seller.

Enactment. Participation by the states in the SSTP is voluntary. While the SSTP has a model statute and agreement, it is up to the individual states, either through enactment of legislation or state executive order, to determine if they wish to take part. Currently, over 30 states participate.

For a discussion of the streamlined sales tax project, see the State & Local Taxes column, by Virginia Gates and Ferdinand Hogroian, in the December 2001 issue of The Tax Adviser.

—Nicholas Fiore, editor
The Tax Adviser

 

 

©2001 AICPA

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