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SSTP is Not All It’s Cracked Up to Be

2 min readBy: Joseph Bishop-Henchman

This week, the National Conference of State Legislatures (NCSL) again called on Congress to give states the power to force out-of-state companies to collect 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. es for them. One enthusiastic legislator even urged that Congress act fast to allow states to grab that revenue before the stimulus money runs out after 2010. Unwilling or unable to collect use taxes from their own residents, members of the Streamlined 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. Project (SSTP) eye billions in “uncollected revenue” (read: tax increases) and hope to get businesses to do it for them.

Earlier this year, Maryland’s Ways & Means Committee asked the Tax Foundation for its thoughts on SSTP. Check out that testimony here, with some highlights below:

  • The [SSTP] effort has its merits, but it also neither a source of free money nor non-controversial.
  • Although some academics resent the “physical presence rule” [reaffirmed in Quill by the U.S. Supreme Court], 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 governance structure of raises some questions of democratic accountability and whether SSTP receives or seeks genuine public input.
  • [T]he 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.
  • In adopting “destination sourcing” for online sales but permitting states to adopt “origin sourcing” for intrastate sales, this means that Internet companies will collect sales taxes based on where their customer is located, but brick-and-mortar stores will 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.
  • The SSTP has not accomplished its mission. The SSTP should look again at serious simplification efforts before declaring themselves a success and seeking to expand state taxing power.
  • 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.

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