States To Begin Collecting Online Sales Tax In October

by Mike Godfrey, Tax-News.com, Washington

05 August 2005

At least eighteen states will begin voluntarily collecting taxes from purchases made over the internet from October 1 this year under the Streamlined Sales Tax Project, it has been reported.

According to E-Commerce Times, the eighteen states have contracted software vendors to create free tax collection software for online merchants participating in the program.

Online merchants will collect and remit taxes for sales originating in any of 11 states that have fully amended their state laws to comply with the project's standards. In the other seven states, collection is optional until their tax codes are brought into compliance.

In both cases, the taxes collected will be based upon the rates in the state where the buyer is resident, and the retailers will be compensated for the cost of collecting and remitting the taxes to state governments.

More than 30 retailers have agreed to participate in the program, according to the report. The program also offers a twelve month amnesty for retailers which have not been reporting online sales.

Under the Streamlined Sales Tax Project (SSTP), states are required to establish uniform definitions for taxable goods and services, and maintain a single statewide tax rate for each type of product. The project also seeks to simplify tax reporting requirements for online sellers. But while some retailers support the SSTP, businesses in general are lukewarm or hostile to the plan, which they say will impose burdensome new recording and reporting requirements.

Currently the states estimate they are losing over $15bn a year from Internet sales, although much of this relates to uncollectable inter-state sales. The Supreme Court ruled in 1992 that states could not force businesses outside their borders to collect their sales taxes unless the companies have stores or headquarters in those states.

Full members of the project include Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, North Carolina, Nebraska, Oklahoma, South Dakota and West Virginia. Arkansas, North Dakota, Ohio, Tennessee, Utah and Wyoming are associate members. New Jersey is expected to become a full member in October, whilst Nevada and Hawaii are in negotiations to join the project.

Recommended