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Saturday, December 5, 2009

Sales and Use Tax Collection and the SSUTA

Perhaps we'll see Congress reintroduce the streamlined sales tax bill that would allow states that have simplified their sales tax to require remote (out-of-state) vendors to collect sales tax from customers in the state. The bill in the 110th Congress was H.R. 3396. The Multistate Tax Commission (MTC) has a draft of legislation on its website - here. This would be a significant benefit to states. After all, it is much more effective to collect sales tax from thousands of vendors than to collect use tax from millions of customers.

Will Congress be more willing to pass the bill given budget shortfalls in almost all states? Also, 20 states have adopted the Streamlined Sales and Use Tax Agreement (SSUTA) meaning there is some high level of uniformity among these states.

Also, there are businesses and business groups that support this type of legislation because they want to see the playing field leveled as between Internet vendors and those that collect sales tax.

There has even been some support in the press - see this 11/26/09 opinion in the New York Times. And a 11/1/09 piece from the Grand Rapids Press calls upon Congress to help the states out.

The SSUTA is not without its faults though. It still allows for local jurisdictions to set their rate so we don't have the significant simplification of one rate per state. Also, states that have not yet conformed, such as California, might not do so. California is a big state and might not want to have the same voting power on the SSUTA Governing Board as, say, Wyoming, with a population smaller than that of San Jose, CA.

In July 2009, the California Assembly Revenue & Taxation Committee held an informational hearing on the SSUTA. The Board of Equalization submitted a report noting some of the problems for California in adopting the bill including the need to make changes in our sales tax base and and how some transactions are sourced (destination versus origin).

I think 111th Congress will introduce and enact the streamlined sales tax bill. That will cause remote vendors (above a certain size) to implement systems to enable them to collect sales tax from customers in the states that have adopted the SSUTA. Perhaps some of them will also start collecting from all customers! That would depend on what they sell and if it is clearly subject to tax in the non-adopting state both before and after adoption of the SSUTA in that state.

The SSUTA does provide for vendor compensation and that's a good idea given the costs of collecting the sales tax.

It wouldn't hurt for California to consider what would be involved in adopting the SSUTA - how many changes would have to be made and what is their significance. With that, the legislators can either act or stay the course. If it just stays the course, it can hope that residents start doing a better job of remitting use tax (unlikely) or hope that if all other states adopt the SSUTA, it might be able to keep its own system. After all, sales tax compliance would really not be complex if there is one system used by 45 states (4 states do not impose a sales tax) and 1 used by California, so perhaps then it would be constitutional for California to collect sales tax from remote vendors.

What do you think are the prospects for 111th Congress enacting a streamlined sales tax act?

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