Amid acrimonious debate over how Internet purchases should be taxed, if at all, representatives from 27 U.S. states are meeting near Chicago, Illinois Friday for public hearings on a proposal that would streamline sales tax for both online and offline retailers.
“The states are designing a new, simpler sales-and-use tax system that increases uniformity and maintains some state flexibility,” said Charles Collins, an executive with the North Carolina Revenue Department and co-chair of the steering committee for the Streamlined Sales Tax Proposal.
“The system also incorporates the highest degree of security and privacy,” Collins added. “This new system will ease consumer concerns regarding tax collection during online purchasing.”
Although 39 states are taking part in the Streamlined Sales Tax Project, only 27 have formally authorized consideration of the proposal, either through their state legislatures or executive orders by their governors.
The State of Sales Tax
E-tailers believe that having to collect sales tax on purchases made by shoppers across the United States would be an unfair burden. There are currently over 7,000 government entities, most of them municipalities, within the U.S. that collect sales tax.
Conversely, local retailers and elected officials argue that the exemption of Internet sales from tax is unfair to brick-and-mortar stores and causes states to lose sales tax revenue.
Jeffrey A. Friedman, former vice president-counsel with the Committee On State Taxation, told the E-Commerce Times that it would take an act of Congress to change the current rule mandating that sellers only have to collect sales tax if they have a physical presence in the purchaser’s state.
Although Friedman would not speculate on whether the states’ proposal is aimed at eventually collecting sales tax from all e-commerce sales, he did say that there were some commentators who feel that the proposal is a first step in simplifying e-commerce taxation so that e-tailers can no longer make the undue burden argument.
“Our proposal is just to simplify sales tax,” steering committee co-chair Diane Hardt told the E-Commerce Times. “We’re not specifically gunning for e-tailers.”
The proposal has several key features:
- While individual state legislatures would continue to decide whether an item is taxable or not, uniform definitions would be created for retailers to use in determining the tax-exempt status of items in various areas.
- States, while preserving the right to set their own tax rates, would limit the frequency of rate changes to a uniform number.
- With the location of delivery determining the tax status of a product, tax jurisdictions would be tied to postal zip codes for simplification.
- States would pay for part of the system’s implementation to ease the financial burden on retailers.
- Though sellers would have to file returns in all states in which they do business, they would use the same form for each state.
- States would certify tax software that, if properly used, will shield sellers from most audits as well as liability resulting from calculation errors.
The Next Steps
Project planners have another hearing set for October and hope to present a finalized version of their proposal to state legislatures in January.
Beginning early next year, a pilot project will be launched in four states — Wisconsin, Michigan, North Carolina and Kansas — to give planners a better idea of how much the project will cost to implement and whether the chosen software can accurately calculate and remit tax amounts.