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SSTP Proposals Approved By 30 States

by Mike Godfrey,, New York

14 November 2002

The Streamlined Sales Tax Program (SSTP), which for four years has been inching its way towards a multi-state platform that would allow major simplification of the United States' 9,000 different sales and use tax regimes, took an important step forward this week when representatives from 30 states endorsed the program's legislative basis and agreed to put it into effect when at least 10 states representing 20% of the US population have amended their laws to implement the proposals.

"This is a 21st century system that will dramatically improve the morass that currently exists," said Utah Gov. Mike Leavitt (R), a key leader in the states' effort. "I'm confident that this agreement....will mark the beginning of a new phase of this process."

The existing tangle of different regimes makes design of an Internet sales tax system an impossible nightmare, and is one of the main reasons that Congress extended the national Internet sales tax moratorium for a further two years until September, 2003. Leaders of the SSTP believe that once enough states have signed up to the standardised sales tax laws they have been developing, then Congress will legislate to allow states to impose sales taxes on out-of-state transactions - currently banned, and the reason behind the plethora of 'use' taxes which seek, largely unsuccessfully, to collect tax from purchasers of out-of-state supplies.

Taxing Internet transactions is becoming an ever-more pressing need for the states, many of which face budgetary black holes as conventional sales tax revenues shrink; The US General Accounting Office has estimated states lose nearly $13 billion each year on untaxed Internet transactions, and the figure is expected to more than triple to $45 billion by 2006.

Under the Streamlined Sales Tax Project proposal, states would be 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 retailers unsurprisingly support the SSTP, businesses in general are lukewarm or hostile to the plan, which they say would impose burdensome new recording and reporting requirements.

The states participating in SSTP plan to entice online merchants to collect sales taxes voluntarily by sharing with them a portion of the tax revenues that they remit, but it's far from clear that this will be enough to persuade a multi-state retailer to keep 45 sets of records. Online sellers would be required to purchase approved tax-calculation software or to certify with the states any in-house calculation systems already in place; or they could choose to outsource tax collection to a certified third-party.

The states ran a pilot study recently involving just one multi-state retailer, which was not unsuccessful, and plan a more extended series of trials over the next few months. They will also be attempting to formulate a guide to costs and operating procedures for Internet merchants, to head off uninformed criticism from retailers trying to avoid taxation however it comes dressed up.

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