Skip to content

Streamlined Sales Tax State Members

2 min readBy: Scott Drenkard

As of December 4, 2013, 22 states are full 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), while two states are associate members and 26 states and the District of Columbia do not participate in the project.

The SSTP was formed in reaction to Quill Corp v. North Dakota (1992), wherein the U.S. Supreme Court reaffirmed the limitation of state taxing power to each state’s geographical border. In that decision, the court declared that any change to state taxing power would have to be enacted by Congress. For this reason, the Quill decision is at the center of discussions around the Marketplace Fairness Act, which is an attempt to require online retailers to collect sales taxes from purchasers in other states, even if their business doesn’t have physical presence in the state they are shipping to.

The Streamlined 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. Project is an attempt to get states to voluntarily comply with simplicity and uniformity measures in their sales taxes, in part so that Congressional action to give states additional taxing power would not be overly burdensome on companies that collect and remit sales taxes.

Both simplicity and uniformity are laudable goals, but SSTP’s record on attaining them has been hit and miss. As my colleague Joe Henchman noted in testimony in Maryland, member states of the SSTP have successfully implemented a uniform single definition of the word “candy” (which is actually a contentious issue in the sales tax world), but they have been unsuccessful on simplifying sales tax administration by any reasonable standard. From Joe’s testimony:

[…] 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.

Rather than requiring that states simplify before reaching out beyond their borders to tax out-of-state companies, the SSTP seems content to let states continue the status quo. One panelist noted that far from requiring substantial reforms, "States still get to do 99.9% of what they want to do" under the SSTP agreement. This demonstrates either disingenuousness or how little the SSTP recognizes that many existing sales taxes are in need of substantial reform.

For my part, the other important thing to remember here is that membership in the SSTP does not imply that your state has a “good” sales tax. Problematically, many states choose to exempt services from their sales tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. (which should be included) and tax business-to-business transactions (which should be exempt).