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Sales Tax Streamlining Effort: Congressional Bill Imminent

1 min readBy: Joseph Bishop-Henchman

Ever since the current session of Congress began sixteen months ago, I’ve heard that a federal bill will be introduced “within a few weeks” to allow states to force out-of-state companies to collect sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. on interstate sales. The latest rumor is that it will finally be introduced on Thursday, following the beginnings of a compromise on “vendor compensation” – the amount of sales taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. that businesses keep to reimburse them for acting as the state’s tax collector.

According to John Buhl of Tax Analysts (subscription required), the compromise is that vendors would receive 0.9% of receipts in states that have just one sales tax in the state, and 1.0% in states with local sales taxes in addition to the state sales tax. If the states are unhappy with that, businesses are unhappy with a proposal to adopt a tiered system that would deny or reduce compensation to some businesses.

We’ve noted before that the effort to streamline state sales taxes has much work still undone. Sales taxes are not yet simple or uniform enough to justify congressional overruling of the Supreme Court’s restraint on state power to tax interstate transactions. But an agreement on vendor compensation is a big step forward.