DMA Warns That Sales Tax 'Sourcing Rule' Jeopardizes Sales Tax Simplification

December 13, 2007 — The Direct Marketing Association (DMA) strongly opposes the recently approved “sourcing rule” provision of the Governing Board of the Streamlined Sales and Use Tax Agreement (SSUTA). DMA last evening said the provision was a significant step backward on the road to genuine sales tax simplification.

Specifically, the proposal approved by the SSUTA Governing Board would allow states to retain origin-based sourcing for in-state sales, but would require out-of-state sellers to impose sales tax to consumers on a destination basis. In effect, this means that the very same item would often be taxed at a different sales tax rate, based simply on whether the item was sold over the Internet (or other remote channel) within the same state where the consumer receives the item, or if the item were sold by a company located outside the state.

DMA Executive Vice President for Government Affairs and Corporate Responsibility Steven K. Berry called the action by the SSUTA Governing Board “an enormous step backward in sales tax simplification.”

Berry went on to note that the Governing Board’s action “represents a clear abdication of the commitment of the original SSUTA language calling for national sourcing rules that are based uniformly on the destination of the consumer.” Berry further added, “clearly, the interests of consistency, simplicity, and uniformity in sales tax rules have been abandoned by the Governing Board.”

Berry commented that “fortunately, absent enactment of federal legislation, which would make the currently voluntary SSUTA mandatory, this inconsistent sourcing rule will not bind companies across state lines.”

To that end, DMA testified on December 6 before the US House Judiciary Subcommittee on Commercial and Administrative Law in strong opposition to legislation that would make the SSUTA mandatory.

Berry concluded by stating that, “with this latest change in the sourcing rule, the already strong argument against Congress making the SSUTA mandatory is now even stronger.”

# # #