As a result of last week's admittance of 17 states as either full or associate members to the Streamlined Sales and Use Tax Agreement's (SSUTA) governing board, the new tax system will be effective in fully compliant states as of October 1, as reported by the Bureau of National Affairs (BNA). The process for registering to collect and remit remote sales tax will be made available as of that date, according to Neal Osten, federal affairs counsel for the National Conference of State Legislatures. While SSUTA is voluntary, its enactment may entice chain retailers with a prominent online presence to begin collecting sales tax before Congress enacts legislation, because SSUTA provides tax amnesty.
SSUTA was created as a way to make it easier for retailers that do business in multiple states to calculate, collect, and remit existing use tax. The agreement covers all sales, regardless of how they occur. "Other than gas and electricity, and big items like manufactured houses, all products are included, unless a state determines to exempt a certain product," Osten noted, via e-mail.
For the agreement to become effective, 10 states representing 20 percent of the population of states with sales taxes had to pass compliant legislation. The 17 states currently on SSUTA's governing board represent 25.3 percent of the population of states that collect sales tax, BNA reported.
States recently gaining full membership are Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, North Carolina, Oklahoma, South Dakota, and West Virginia. The six states that became associate members are Arkansas, Ohio, North Dakota, Tennessee, Utah, and Wyoming. It is expected that Nevada will be certified on October 1.
Full members are those states that have complied, effective July 1, 2005, with every aspect of SSUTA in their statutes or administrative regulations. Associate member states are "substantially compliant, though some aspects of the agreement were not fully complied with as of July 2005, or some of the changes in state statues or regulations are not effective until a later date," Osten explained.
Retailers that wish to participate in SSUTA are required to collect and remit sales tax for the 11 full member states, but can "pick and choose" from the remaining six [associate member] states, Bruce Johnson, co-chair of the petitioning states and commissioner of the Utah State Tax Commission, told BTW.
Retailers have a choice in the manner of implementation. They will be able to sign up with a certified service provider, said Johnson, who added that the governing board is currently evaluating sales tax compliance software vendors to fill that role.
Another option is for retailers to collect tax on remote sales themselves and fill in a "simplified electronic return." Retailers who choose this method would be allowed to keep a small percentage of the remote sales tax they collect (different in each participating state) for up to 24 months after registering "to help defray the costs of compliance," Johnson explained.
In the future, retailers will have a third choice: using certified software that is pre-approved by the SSUTA governing board. "The [retailer] would pay for [the software] but would recoup the investment through special allowances," said Johnson.
At present, Osten noted that out-of-state businesses that do not have nexus in the certified states are still not required to collect sales tax. However, it is expected that Senator Michael Enzi (R-WY) will reintroduce the Streamlined Sales and Use Tax Act (SSUTA) during this session of Congress. "We are hopeful that federal legislation will be introduced prior to the August congressional recess," Osten said.
However, retailers with significant remote sales may not wait until federal SSUTA legislation is passed, according to Osten. Because SSUTA provides tax amnesty, it "would mean that instead of a future court determining that a seller indeed should ... pay the state for the sales taxes they should have been collecting -- plus interest and penalties -- the retailer, by volunteering to collect under the agreement, has no past liability to worry about," he said.
This is significant considering that on May 31 the California First District Court of Appeals affirmed a California Board of Equalization (BOE) recommendation that Borders Online LLC had nexus in California and owed back use tax because Borders Books & Music, Inc. accepted returns of Borders Online purchases.
"The Borders case in California will probably help some retailers who have similar nexus issues to volunteer to collect under the agreement," Osten continued. "Until Congress and the Administration enacts federal legislation giving states collection authority, one of the enticements in the agreement is amnesty for past failure to collect sales and use taxes.... However, once Congress enacts the federal legislation, the amnesty provisions of the agreement are void. So if a retailer decides to wait until Congress forces it to collect and then the state determines that the retailer did have nexus for past collections, the state can legally move against the retailer for back taxes, interest, and penalties. Bottom line, sellers should volunteer to collect before Congress acts." --David Grogan