I’ve been using the Internet now for almost 15 years, and buying things on eBay for most of that time. And for all of that time I’ve loved every sales-tax free minute of Internet-based shopping. But as the Streamlined Sales Tax Act continues to pick up steam, I’m beginning to believe that we will see those days eventually come to an end.
The Streamlined Sales Tax (SST) Act is a piece of legislation that will completely transform how we currently apply sales tax on the Internet. What we have now is an origin-based system. If I’m a web retailer in California and I sell to someone with a California address, I charge sales tax. My origin and my destination are the same place, so sales tax applies, even though I’m an Internet retailer. If my customer lives outside of California, on the other hand I don’t. That’s because while my origin is in California, the sales destination isn’t. But the SST changes that, by moving the emphasis to a destination-based tax system, and creating a uniform reporting and collection system. That doesn’t mean the sales tax rate will become the same in all states – only that the method of reporting and collection will become the same.
For the SST to become a reality, two-thirds of all the states must sign on as full members, and Congress must approve the system. If that happens, all Internet retailers will be required to collect, report and remit sales tax on all of their sales to buyers who live in member states.
Right now there are 15 full member voting states, who have met all of the preconditions to join and 7 associate member non-voting states, who are still working things through. Only full members may vote on amendments to or interpretations of the Agreement.
So who’s in? The current full member-states are Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, New Jersey, North Carolina, North Dakota, Oklahoma, Rhode Island, South Dakota, Vermont, and West Virginia. Four of the associate member states become full members in 2008 (Arkansas, Nevada, Washington, and Wyoming), and Tennessee joins in 2009.
It’s been slow going because many states need to make constitutional amendments to change their sales-tax systems, which takes time. There’s been plenty of opposition from various retailers, including eBay who has been lobbying intensively against the SST. And, for some states, the change to destination-based taxation has been a real problem – so much of a problem that two associate member states threatened to quit the agreement, while plenty of other states have refused to join.
Faced with this opposition, the SST Board has made a major about-face on the issue of sourcing, and has voted to allow member states to keep their origin-based sales tax in place under the SST, if they also meet certain other requirements. By changing the SST Agreement states will be offered one of two options: destination sourcing for all sales, or destination sourcing for interstate sales (buyer and seller in different states) and a single method of origin sourcing for intrastate sales (buyer and seller in the same state).
This allows Ohio and Utah, the other two associate members, to stay in the Agreement, and appeases a whole coalition of states, including Arizona, California, Florida, Illinois, Missouri, New Mexico, Pennsylvania, Texas, and Virginia who weren’t interested in joining without the change.
I read a report recently that estimated 2007 Internet sales at about $250 billion worldwide. The United States accounts for a large percentage of that amount. To me, that’s just too much money for any government to resist. It may take several more years to get all the bugs worked out, but I believe the SST is here to stay.