Update on the Streamlined Sales Tax Project

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Currently, US Internet merchants are required to collect state and local sales taxes in their own state (or in states where they might have physical stores). But states are hungry for the revenue from "lost" sales or use taxes that residents don't pay when they shop on the Internet.

In order to meet the requirements of a US Supreme Court ruling, sales tax collection for other states cannot place any additional burden on merchants. And those burdens would be great -- (1) keeping up with the tax laws of the 46 states that collect sales tax, as well as hundreds of counties, cities, and other taxing organizations, and (2) remitting taxes to each of them.

In order to prepare so that merchants can collect taxes for other states, representatives of 39 states have organized the Streamlined Sales Tax Project (SSTP), to agree on uniform definitions of taxable goods, set rules for sourcing transactions, and centralize the registration and administration process for retailers to participate in the new system. (See a "Summary of Streamlined Project's Proposal on Sales Tax Simplification," prepared by the Electronic Commerce Association, www.theeca.org/nettaxes/sstpprop.htm).

But the task is a difficult one. Different states collect taxes on different kinds of products. Some calculate tax on sales plus shipping while others exclude shipping. There are all kinds of variations. Moreover, politicians don't want to pass tax legislation in an election year. If they increase taxes, they're blamed for creating burdens, and if they eliminate taxes for select groups (such as Internet users), they're blamed for favoritism.

Currently the SSTP has subcontracted with esalestax.com, Taxware.com, and Pitney Bowes to run a voluntary pilot project for merchants in four states -- Kansas, Michigan, North Carolina, and Wisconsin -- to test the concept for a system.

But a system that requires US merchants to collect taxes for other states than their own is years away. The largest states, California and New York, still aren't part of the SSTP. And since in October 2001, Congress continued for another two years a moratorium on sales tax collection for other states, state legislatures won't see their work as urgent for some time. Perhaps in three years, merchants will be required to collect sales tax for other states, but it doesn't seem to be an immediate concern.