The Tax Foundation - Tax Foundation Testimony on Sales Tax Streamlining

February 18, 2009

Tax Foundation Testimony on Sales Tax Streamlining

As Maryland considers its membership in the Streamlined Sales Tax Project (SSTP), the Tax Foundation has submitted testimony on the subject. Click here to read it; below are some highlights:

The SSTP has its merits, but it also neither a source of free money nor non-controversial.
In 1992, in Quill Corp. v. North Dakota, the U.S. Supreme Court reaffirmed that the power of states to impose taxes on interstate commerce is limited by their geographic border. Although some academics resent this "physical presence rule," it remains the law of the land and is essential to prevent revenue officials from wreaking havoc on national markets by reaching beyond their borders for tax revenues.
The SSTP is a working group of revenue officials and experts, with the stated purpose of bringing simplicity and uniformity to sales taxes in the United States. The governance structure of raises some questions of democratic accountability and whether SSTP receives or seeks genuine public input.
The SSTP appears to be giving up the effort on simplicity. At their New Orleans meeting in July 2008, for instance, I asked if any effort was being made to reduce the number of sales taxing jurisdictions, and/or to align them with 5-digit zip codes. "No and no," was the short but honest answer.
The SSTP already abandoned the notion of taxing like transactions alike when they adopted "destination sourcing" for online sales, but permitted states to adopt "origin sourcing" for intrastate sales. This in effect requires Internet companies to collect sales taxes based on where their customer is located, but allows brick-and-mortar stores to collect sales taxes based on where the store is located. In this way, the SSTP prevents a level playing field between Internet business and brick-and-mortar businesses.
Neither the wholesale adoption nationwide of uniform sales tax statutes, nor the development of a working alternative that provides the certainty needed for long-term investment, are likely in the foreseeable future.
The SSTP's goals are good ones, but their success is mixed at best, and whatever effect it has will not be seen in the short-term.