Questions and Answers
The following Questions and Answers have been developed by the National Conference of State Legislatures (NCSL), the National Retail Federation (NRF) and the Streamlined Sales Project (SSTP) for legislative sponsors and others involved in state legislation.
Will uniformity as proposed by the Streamlined Sales and Use Tax Agreement reduce autonomy of states and their legislatures?
State legislatures still determine what is taxable or exempt and what is the rate of tax in their state. Uniformity in the Streamlined Sales and Use Tax Agreement requires uniform definitions and uniform administrative procedures—not uniform taxes. Some may perceive this uniformity as reduced autonomy. However, the U.S. Supreme Court (Quill versus North Dakota, 1992) has said that the complicated state and local sales tax systems across this country have created an undue burden on sellers. If states are unwilling to accept uniformity in definitions and administrative procedures to reduce or eliminate burdens on sellers, it is likely that Congress may impose far more stringent requirements on the states.
Do the simplifications go far enough to overcome past U.S. Supreme Court decisions (Quill versus North Dakota, 1992) which said that sales tax systems across the country are too complex to require collection from sellers with no physical presence in a state?
Only Congress can determine if the simplifications are enough for a mandate for collection. The Streamlined Sales and Use Tax Agreement includes dramatic simplifications in exemption processing, uniform definitions, state level administration of local taxes, a reduced number of sales tax rates, determining the appropriate tax rate, and reduced audit burdens for sellers using the state-certified technology. The System provides dramatic simplification in almost every aspect of sales and use tax collection and administration, especially for multi-state sellers.
Does the Streamlined Sales and Use Tax Agreement impede Internet development?
No. The Streamlined Sales and Use Tax Agreement is about simplifying the collection and administration of sales taxes for all types of sellers so that the burden of compliance is reduced for everyone. The Streamlined Sales and Use Tax Agreement provides an opportunity for all businesses—from Main Street to the Internet—to reduce the complexity associated with tax administration while at the same time providing an avenue for sellers to grow their businesses into new areas absent the concern that their new business structure could run afoul of state sales tax laws.
If Congress mandates collection of sales taxes on multi-state sellers with no physical presence in a state, is this taxation without representation.
No. The sales tax is a tax on consumers and not sellers. Also, Congress will not mandate collection unless a state has taken the necessary steps to reduce the sales tax collection burden on sellers.
Are states increasing taxes by taxing Internet transactions?
No. Purchases made over the Internet are taxable now—but most consumers don’t know this and the current laws are almost impossible to enforce against individual consumers. Consumers must pay a complementary use tax when the seller does not collect a sales tax at the point of sale on a taxable transaction. The Streamlined Sales and Use Tax Agreement was created by government and businesses to enable sales tax collection with reduced compliance burdens on sellers. This is not about new taxes.
Will states expand their tax bases through the uniform definitions?
No. Business and government representatives jointly developed the uniform definitions to simplify tax collection and administration, not increase taxes. The definitions were designed to model current tax bases to the extent possible so that increased or decreased taxes would be minimized. To achieve the uniform definitions, some states may choose to make changes to their tax base, but the decision to do so lies solely in the hands of state legislatures.
How does the Streamlined Sales and Use Tax Agreement and related legislation help small businesses?
The Streamlined Sales and Use Tax Agreement and related legislation provides the following benefits to small businesses:
- Simplifies exemption processing with protection for sellers that accept exemption certificates.
- Provides one uniform tax return for all states with the elimination of local tax returns.
- Allows a small business the option to use state-certified software or a Certified Service Provider to reduce or eliminate sales tax administration burdens.
- Makes it easier for businesses to expand to markets in other states or via the Internet because all states will use the uniform definitions and administrative procedures.
- With Congressional action, levels the playing field between (1) small Main Street businesses who collect sales taxes and (2) large, multi-state businesses that are not required to collect sales taxes because they have no physical presence in a state.
What are the costs to sellers if they use state certified software or a Certified Service Provider for their tax collection functions?
The Streamlined Sales and Use Tax Agreement provides new technology options to sellers for sales tax administration. A seller can use a Certified Service Provider (CSP) or acquire state certified software. If a seller uses a CSP, the states agree to work together to pay for the costs of the CSPs that will be selected through a combined contract. The CSPs are responsible for developing software that determines the tax application, rate and jurisdiction. The CSPs will provide the necessary software to integrate with the seller’s order processing and accounting systems. The CSPs will file applicable tax returns for the sellers. A seller’s tax collection burden is eliminated under this option.
The states will also collectively certify software for use by sellers. This is called a Certified Automated System (CAS). The seller obtains the CAS and will receive a compensation allowance from the states for two years for acquiring the CAS. The amount of the allowance will be based on the cost of the CSPs. The seller remains liable for filing returns and remitting the tax with a CAS.
What other technology features are included in the Streamlined Sales and Use Tax Agreement?
The Streamlined Sales and Use Tax Agreement includes new technology to make tax collection easier including:
- Uniform returns that can be filed electronically.
- Central registration system to provide one-stop service for voluntary collectors. The system will be eventually expanded to all businesses.
- State-approved data bases matching rates with jurisdictions. Sellers using the data bases will not be held responsible for errors in tax collection.
- A state-by-state taxability matrix that will list items and services and the taxability determination for each state. Sellers using the matrix will not be held responsible for errors in tax collection.