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Future Of Internet Sales-Tax Plan Uncertain
by Chloe Albanesius
The plan to tax Internet sales has not seen much substantive action from state legislatures in 2004, making it unclear whether states will be able to implement the plan nationwide in the near future.
The Streamlined Sales Tax Project (SSTP) is the brainchild of several state and private industry leaders that joined forces in 2000 in an effort to craft an efficient way to collect sales taxes in states that were losing revenue to Internet sales.
Under its most recent rules, the SSTP would allow legislatures to choose what is taxable and exempt in their state. They also would be allowed one state rate and a second rate for items such as food and drugs. Businesses no longer would have to file tax returns with each local government within the states but would be referred to a central point of administration.
The project also promotes destination-based sourcing for transactions to state and local governments. States would be responsible for the funding of some technology models, and would participate in a joint business and government study of the cost of collection on sellers.
The Case For Streamlining
The idea of uniform rules on how to collect Internet sales taxes enjoys support from groups representing state and local lawmakers. For example, the National Governors Association (NGA) said in its online policy statement that it supports a system that includes one sales-tax rate per state, streamlined administration and audit requirements, and uniform definitions of the goods and services that may be taxed.
The National Association of Counties (NACo) also reiterated its support for SSTP this year and urged states to enact laws that conform to its provisions. While the organization advocated federal legislation that required retailers in other states to collect sales and use taxes on remote sales, it called on federal lawmakers not to impose conditions on states that differ from the simplification requirements outlined under SSTP.
The National Conference of State Legislatures (NCSL), which has spearheaded the effort with its task force on state and local taxation of telecommunications and e-commerce, continues to push for SSTP adoption.
Forty-two states and the District of Columbia are currently involved in the project. Forty-five states and the District have sales and use taxes.
At least six states this year introduced legislation addressing SSTP, but most called for implementation delays or studies of the project. Two SSTP-related bills in Washington died when the legislature adjourned this year. The first measure, H.B. 2501, would have corrected errors and omissions in relation to SSTP, while another bill, H.B. 2500, aimed to conform Washington to the agreement by enacting destination-based sourcing provisions.
A Time For Study
Jim White, the mayor of Kent, Wash., said in a speech this summer that the SSTP would "cause havoc among our small businesses who will be forced into complicated and cumbersome reporting rules." White said his city, a warehousing and distribution district located between the ports of Seattle and Tacoma, must comply with the state's origin-based sourcing, a situation that means "a massive shift of sales tax out of our city."
White said "it has been suggested that if, and when, Congress authorizes the taxation of the Internet, then the increased revenues would cover" any losses. But he noted that the state's Revenue Department has said 37 cities and one county would experience a combined net loss of $10.8 million after taxation on remote sales.
"Cities like mine very much support the intent" of SSTP, White said. "But we will vigorously oppose the project unless it is implemented in a way that avoids the unintended consequences of this shift in revenues that creates winners and losers." Under current SSTP guidelines, Kent stands to lose $3.8 million, or 25 percent of sales tax revenue, White said.
Pennsylvania lawmakers this year introduced two SSTP bills. A House bill, H.B. 2678 was introduced in June that calls on the state to participate in multi-state negotiations in order to settle on the terms of a sales-tax agreement. The bill also would direct chosen delegates to develop standards in order to certify service providers, develop an automated monitoring system, and establish performance standards for multi-state sellers. It was referred to the House Finance Committee.
Another bill, H.R. 771, also was referred to Finance and the state House passed it July 2. It would direct the committee to gather information on SSTP, determine how it might affect Pennsylvania revenues and businesses, and decide the feasibility of adopting legislation to become an SSTP conforming state.
Second Thoughts In Utah?
In Utah, Gov. Olene Walker in June signed a bill, S.B. 3001, that would delay implementation of SSTP by one year, until July 2005. The effort prompted reports that Utah, the state that spearheaded SSTP, might not implement the program at all.
State Senate Revenue and Taxation Committee Chairman Curtis Bramble, a Republican, said there is a growing movement to delay streamlined sales-tax legislation. Business lobbyists are speaking against additional taxes on the delivery, installation and repair of equipment now exempt from sales taxes. Bramble said he supports SSTP but is concerned about such challenges.
Meanwhile, Walker, a Republican, signed into law a measure, H.B. 273, that modifies the municipal telecom licensing tax to coordinate with SSTP.
In West Virginia, Gov. Bob Wise, a Democrat, signed a bill, H.B. 4349, that implements remaining portions of SSTP and provides for specific sourcing rules on telecom services. While the bill integrates destination-based sourcing found in SSTP, it provides an exemption for telecom services.
In Tennessee, Democratic Gov. Phil Bredesen signed a bill, S.B. 3454, in June that authorizes the revenue commissioner to accept credit or debit cards for payment of taxes and fees. The commissioner could reach agreements with banks or third-party service providers to facilitate such payments and would fund such initiatives via customer administrative fees.
The measure also makes various updates in order to comply with SSTP, including a revision of the distribution of the tax on interstate telecommunications sold to businesses. The purpose is to reflect the change in the tax from a 7.5 percent state rate and no local tax to a 7 percent state tax and up to 2.75 percent local tax.
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