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BizPlanBuilder v9

Decode the Streamline Sales Tax Project

If you're a retailer who ships out of state, you could be hit with a huge tax bill next year. Here's what you need to know.

Fast Facts

Online tools can help ease implementation and keep businesses up to date with local changes.

Taking action now allows businesses to capitalize on the current sales tax amnesty program.

Once enacted, uniform definitions and set standards will make it easier for remote sellers to collect sales tax from a customer in another state

Like most tax related information, the Streamline Sales Tax Project (SSTP) is anything but easy to understand. And, while few businesses are aware of its implications, SSTP's possible passage is sure to affect how retail businesses operate. This includes catalog retailers and businesses involved in e-commerce, or sales over the Internet.

SSTP Origins

In 1992, the U.S. Supreme Court ruled that remote sellers must collect sales tax from out-of-state customers if the business has a physical presence in the customer's home state. The ruling's intent was to alleviate the burden on retailers trying to understand the widespread rules in thousands of different jurisdictions.

However, states and numerous brick-and-mortar retailers claimed that the ruling created an unfair business environment favoring remote sellers. As a result, in 2000, multiple states officially organized the SSTP and currently numerous states are passing legislation to join the program. The SSTP's primary goal is to simplify and standardize the sales tax collection process across the country, so that remote retailers can easily access and apply sales taxes in the jurisdictions they ship to.

Recognizing that the project was building steam and support, the U.S. Congress committed to draft legislation requiring collection when at least 10 states with 20% of the nation's population signed the agreement. This threshold is getting close to being met.

SSTP's Potential Impact

Recognizing that the SSTP might meet its criteria, The Simplified Sales and Use Tax Act of 2003 was introduced. If enacted, federal legislation would take what is currently slated to be a voluntary collection system and make it a mandatory one.

Even though a firm date has not been set for activation, this would be a significant change for business, says Kristi Magill, managing director of state and local tax division with Minneapolis-based RSM McGladrey Inc. "All told, there are more than 7,000 jurisdictions including states, counties and cities that charge a sales tax. This can significantly impact how businesses operate, especially in states that formerly allowed firms to use an origin-based sales tax calculation system," Magill says. "You no longer need to just keep track of your own local jurisdiction; you now need to know how sales tax is charged wherever you ship to."

Magill adds that when the SSTP meets its threshold and is officially activated, participating state governments are supposed to provide a software solution to simplify the process, but no software developer has been chosen yet.

Even though voluntary participation may seem like more hassle than it's worth, early enrollment does have its benefits, including avoiding retroactive tax collection. "Businesses have also been presented with an amnesty provision allowing them to wipe out past debts as long as they are willing to register under the SSTP and comply in all member states from this point forward," Magill says.

If they don't comply, businesses can be hit with a retroactive tax bill dating back to the day their home-state adopted the program. "This can be significant," Magill adds.

Wells Fargo Bank