State Governors should not be discounted when the issue comes to the collection of sales tax and their willingness to simplify the tax structure. The U.S. General Accounting Office estimates that states lose $13 billion each year on untaxed Internet transactions. Some estimates take this figure to $45 billion by the year 2006 (Madigan, 2002). As we have learned from the case studies of just two states, tax calculations and collections can be very cumbersome for businesses operating over the internet or any mail order type of fulfillment.
One solution for retailers is to outsource the calculation and filing of taxes. While they may save money on administration, this is not a real solution to the problem. Outsourcing also does not alleviate a company from their legal tax responsibility, just the administrative work required. The real solution must be a change in the laws.
Recently 33 states and the District of Columbia united and approved a plan that will work to make the tax systems streamlined and easier for retailers. The mission statement for the Streamlined Sales Tax System For the 21st Century is quite clear and simple. As quoted from their official Web site located at www.geocities.com/streamlined2000, it simply states “The Streamlined Sales Tax Project will develop measures to design, test and implement a sales and use tax system that radically simplifies sales and use taxes” (Official web site).
The Streamlined Sales and Use Tax Agreement was formerly adopted on November 12, 2002. In a formal press release from the Streamlined Sales Tax Implementing States (SSTIS), Angela Monson, Co-chair of the SSTIS and First Assistant Majority Floor Leader in the Oklahoma State Senate, heralded the achievement as “a historic achievement”. (SSTIS Press Release, November 2002). The SSTIS touted how “the simplified system reduces the number of sales tax rates, brings uniformity to definitions of items in the sales tax base, significantly reduces the paperwork burden on retailers, and incorporates new technology to modernize many administrative procedures.”
Moving beyond the rhetoric of the press release, the Streamlined Sales and Use Tax Agreement does have several key elements that should benefit retailers by simplifying their processes and states by receiving revenues they might otherwise note receive. Listed here are some key elements and the benefit from the Streamlined Sales and Use Tax Agreement.
- Each member state shall provide for collection of any local taxes and distribution of them to the appropriate taxing jurisdictions.
This saves the burden of contacting multiple tax authorities in states such as Alabama.
- If a member state has local jurisdictions that levy a sales or use tax, all local jurisdictions in the state shall have a common tax base.
This saves states from managing large tables of varied tax rates and allows for a simpler calculation process.
- Each member state shall participate in an online sales and use tax registration system in cooperation with the other member states.
This allows companies to file their taxes electronically and the only need to file in their primary state of business, not in every state for which they may collect a tax.
- Provide and maintain a database that assigns each five digit and nine digit zip code within a member state to the proper tax rates and jurisdictions.
Currently some tax rates can differ within one zip code, as zip codes can fall into multiple counties or cities. There is no way to verify the tax rate, as an address does not indicate a county. This clause ensures that companies have the data to properly determine tax rates and therefore calculate a correct sales tax.
- Require that only one tax return for each taxing period for each seller be filed for the member state and all the taxing jurisdictions within the member state
This is a major savings for business in states that have multiple jurisdictions.
In essence, retailers will only need to file one form and make one payment per state where they make a sale. Tables and online systems will exist to make the process as easy as possible.
Though the system will be voluntary, the SSTIS hopes that the ease of regulations will convince Internet retailers to collect and pay the sales and use taxes. They hope that this united effort will convince the Federal government to remove the moratorium on new sales taxes. Combined, this should work to regain the revenue states feel they have lost over the years of the Internet’s infancy.