July 23, 2003
FACT SHEET: Streamlined Sales Tax & Use Agreement
What is the Streamlined Sales and Use Tax Agreement?
The Streamlined Sales and Use Tax Agreement is a significant attempt to modernize sales and use tax systems and to save them as viable components in state revenue mixes. In addition, the agreement "levels the playing field" between local and out-of-state merchants and benefits all retailers by reducing their administrative costs.
Why do we need the Streamlined Sales and Use Tax Agreement?
Forty-five states plus the District of Columbia use sales taxes as an integral part of their revenue systems. Changes in the nation's economy and in the way consumers make purchases are eroding sales tax revenues. The most recent research estimates state and local governments may have lost as much as $13.3 billion in 2001 because they were not able to collect sales taxes on Internet sales. Additionally, researchers estimate state and local revenue loss may rise to $45.2 billion in 2006 and $54.9 billion for 2011.
Why don't online and catalogue retailers always collect sales tax?
Two United States Supreme Court decisions - the 1967 Bellas Hess and the 1992 Quill case - which acknowledged that consumers owe the sales tax when the purchase goods through catalogues or over the Internet. However, the court ruled that states cannot force retailers to collect the tax since keeping track of the rules in the 7,500 taxing jurisdictions would be a burden to interstate commerce.
How does the agreement work?
The Streamlined Sales and Use Tax Agreement substantially simplifies state and local sales tax systems by making the various state sales and use tax codes look similar to one another while maintaining state sovereignty to set their own rates and bases. Areas of simplification include:
- Uniform product and administrative definitions;
- Standardization for sales tax holidays;
- Amnesty for participating voluntary sellers;
- Uniform rounding rules; and
- Uniform customer remedy procedures, among others.
Which states are involved in the Streamlined Sales and Use Tax Agreement?
The agreement was developed by legislators, tax administrators and private sector representatives from 35 states whose legislatures earlier had passed legislation authorizing their discussions.
Currently, 20 states have enacted legislation that revises their sales and use tax codes to comply with the Streamlined Sales and Use Tax Agreement.
What if our state doesn't participate in the Agreement?
Participation in the agreement is voluntary. However, it is likely that the agreement will serve as the basis for Congress to grant authority to states to require all sellers, regardless of location, to collect sales and use taxes. The Streamlined Sales and Use Tax Agreement provides states with a blueprint to create a simplified sales and use tax collection system that, when implemented, allows justification for Congress to overturn the Bellas Hess and Quill decisions.
What makes the states think they've overcome the barriers outlined by the court decisions?
Most sales and use tax codes were written during the economies of the 1950s and 60s. Those economies were anchored largely on the strength of the country's manufacturing sector. Now that the nation relies so heavily on the digital economy, it seems appropriate that states update their sales and use tax codes appropriately.
The success of the Streamlined Sales and Use Tax Agreement lies in the advancements of technology.
Why should a retailer participate?
Retailers who employ the use of certified "streamlined" software will receive a certain level of relief from state audits and reduced and sometimes eliminated liability for errors.
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