Nearly 8,000 Sales Taxes and 2 Fur Taxes: Reasons Why the Streamlined Sales Tax Project Shouldn’t Be Quick to Declare Victory

July 28, 2008

The Streamlined Sales Tax Project (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. There are nearly 8,000 sales taxing jurisdictions, each with their own bases and rates, and the enormous complexity involved in tracking borders and changes is a huge stumbling block to state efforts to impose tax on online sales. Member states (of which there are 22 so far) must adopt reforms to align their tax code with the SSTP.

While the SSTP has made some progress on uniformity (they have succeeded, for instance, in a single accepted definition of “candy”—something everyone defined differently before), it appears to be giving up the effort on simplicity. At their New Orleans meeting last week, 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.

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. This controversial move was adopted unanimously by the SSTP board last December, under immense pressure.

Coupled with the SSTP’s non-worry about reducing the number of jurisdictions (they spoke optimistically of providing maps of sales tax jurisdictions, having rejected even aligning jurisdictions with 9-digit zip codes), full implementation of the SSTP could result in a serious and inequitable burden on e-commerce.

Another recent example is from New Jersey. The SSTP requires that all states have a uniform definition of clothing, and tax all of it (or none of it) at the same rate. New Jersey did so, but then imposed a “separate” fur tax on fur sales. Rather than recognizing this as an end-run around tax uniformity, the SSTP on July 17 upheld New Jersey’s action (though an appeal is likely). The SSTP had previously let Minnesota get away with the same thing.

Meanwhile, the SSTP is attempting to persuade Congress to pass H.R. 3396 / S. 34, which permits SSTP member states to begin collecting sales taxes on online purchases, premised on the belief that the SSTP’s simplification and uniformity mission has been accomplished. It has not. The SSTP should look again at serious simplification efforts before declaring themselves a success and seeking to expand state taxing power.

Minnesota and New Jersey have SSTP-sanctioned “fur taxes”

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