Politically Direct: State Budget Deficits Draw Increased Attention to Streamlined Sales Tax Project
April 1, 2009 — During these challenging economic times, it is not surprising that states, facing mounting deficits, would seek to increase state revenues. To that end, lawmakers in state houses across the country may be looking to the Streamlined Sales Tax Project (SSTP) to provide an easy solution by allowing them to collect money already owed to the state. But in reality, SSTP is no quick fix for states’ financial woes.
DMA opposes SSTP because it forces out-of-state retailers to serve as unpaid tax collectors for states in which they have no physical presence.
Armed with exaggerated estimates of uncollected sales tax, proponents of SSTP claim that states that join the Project will be able to collect sales revenues from out-of-state retailers and remit them to the state treasury. SSTP proponents, citing an academic study published in 2000 by the University of Tennessee, estimate these unpaid taxes to be as high as $45 billion nationwide. However, a more recent study by Forrester Research estimates unpaid taxes at $3 billion.
NOTHING SIMPLE ABOUT SSTP
Were SSTP to become law, out-of-state marketers, including those in 45 states and the District of Columbia, would be subject to state tax jurisdictions that collect sales tax.
The matter is further complicated when considering that there are 7,900 sales tax jurisdictions in the US, numerous sales tax holidays, and that states in the SSTP have not reached a consensus as to what is or is not taxable.
Moreover, compliance with SSTP would require out-of-state businesses — including many small businesses empowered to reach across state lines through the innovation of the Internet — to develop huge tax departments in order to deal with the multiple tax jurisdictions and potential audits from each taxing state, all without compensation from the states into which they would remit tax. This will only lead to higher prices, increasingly dampening commerce, and creating in effect, an “anti-stimulus law.”
Additional measures aimed at bringing more states into the SSTP have complicated this patchwork quilt of tax policy even further, by allowing exemptions for states that agree to sign onto the project.
Further, SSTP proponents do not address the fact that members of SSTP are essentially “betting on the come,” as they are falling in line to receive use taxes that may not materialize. (A use tax is a tax imposed by a state to compensate for the sales tax lost when an item is purchased outside of the state, but is used within that state.)
As determined in the 1992 Quill Corporation v. North Dakota Supreme Court case, state sales taxes are not required to be collected by an out-of-state merchant and remitted to the state unless the merchant has a physical presence in that state.
Although legislation has been introduced in multiple recent sessions of Congress, none has yet succeeded in being passed into law. Therefore, failing an act of Congress, out-of-state retailers cannot currently be forced to join SSTP.
DMA remains opposed to SSTP, as well as any additional unnecessary and burdensome taxes or legislation that could stifle the growth and viability of the Internet.
DMA Senior Vice President of Government Affairs Jerry Cerasale recently testified regarding this position before a Florida Senate Committee, citing the loss of sovereignty the state would be subject to, and offering more realistic estimates of potential tax revenue that could be recouped.
At the Federal level, DMA, along with other interested organizations, sent a letter to Congressional leadership, strongly opposing a proposal to include language in the economic stimulus package that would allow a state conforming to SSTP to impose significant cost burdens on businesses located outside the state. Citing the anti-stimulus nature of such a proposal, the letter advocated that any stimulus legislation remain free of this language.
Requiring Internet companies to navigate the myriad of state and local tax laws and audits would create a huge barrier to entry, and would threaten to impede the Internet’s ability to act as an engine for innovation, empowerment, and business establishment.
DMA maintains that including streamlined sales tax language in any stimulus legislation goes against the spirit of attempting to increase economic activity.
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