December 2003

The Streamlined Sales Tax Project

By Mary McLaughlin

A sales tax is an excise tax on goods or services purchased by a consumer from a retailer that has a physical presence in the same state as the consumer. The buyer bears the legal burden of the tax but the seller is required to collect and remit the tax to the state. A use tax is a compensating tax for the privilege of using, storing, or consuming within the state tangible personal property or specified services, the purchase of which would have been subject to sales tax had the sale occurred within the state.

Currently, 45 states and the District of Columbia impose a sales tax and a compensating use tax. America’s sales and use tax system, with 7,500 state and local taxing jurisdictions across the country, is antiquated, complex, and cumbersome to businesses. One of the problems with so many taxing jurisdictions is that they often have different laws or definitions of what is taxable. For example, potato chips might be defined as a food in one state (typically nontaxable), but as a candy—and therefore taxable—in the next.

The Streamlined Sales Tax Project (SSTP) is an effort by state governments, with input from local governments and the private sector, to completely overhaul the existing sales and use tax system. The project was organized under the auspices of the National Governors Association and the National Conference of State Legislatures in March 2000. The goal of the SSTP is to substantially reduce the costs and burdens of sales tax compliance for businesses through a combination of simplified laws and administrative policies. Thirty-nine states and the District of Columbia are participating in the SSTP as implementing states. New Jersey and New York are members, and Connecticut’s Governor Rowland issued a directive to participate in the SSTP discussions.

According to a survey by KPMG, tax executives expect the SSTP and similar tax issues, such as a possible move by the United States to a national consumption tax, to influence their company’s ability to compete domestically and internationally over the next five years.

Streamlined Sales and Use Tax Agreement

It is estimated that a simplified and uniform sales tax system could save businesses millions of dollars in efficiencies by removing the burden of complying with existing laws, rules, and regulations in thousands of jurisdictions. Toward this goal, the SSTP participating states approved the Streamlined Sales and Use Tax Agreement in November 2002. The agreement establishes uniform definitions for taxable goods and requires participating states and local governments to have one statewide tax rate for each type of product, effective 2006. The following are some of the key features and requirements of the agreement:

Future Developments

Member states continue to meet and finalize remaining issues, such as definitions pertaining to digital property and the bundling of services. Participants expect the threshold to activate the agreement will be reached by 2004. The work of the SSTP and implementation of the agreement by member states is a win-win situation for both states and businesses toward the goal to simplify the sales and use tax system.

Mary McLaughlin, CPA, is a tax manager with the Ciba Specialty Chemical Corporation.

Edwin B. Morris, CPA
Rosenberg Neuwirth & Kuchner

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