Washington has become the newest member of the Streamlined Sales Tax Project (SSTP), a coalition of 22 states that have simplified their laws to encourage retailers to collect tax on Internet and catalog sales to customers in participating states. The state's membership in SSTP goes into effect on July 1, 2008, though participating out-of-state retailers can begin collecting sales tax from Washington customers this July.

Retailer participation in SSTP is voluntary, but thus far some 1,000 businesses in the other 21 participating states have agreed to collect sales tax on remote sales, according to Jim Justin, assistant director for Intergovernmental Relations for the Association of Washington Cities.

Washington's governor, Chris Gregoire, signed the "Steamlined Sales and Use Tax" bill in March, opening the door for the state's participation in SSTP. The bill requires retailers with nexus in the state to collect in-state sales tax based on the destination of the shipment or delivery, also known as "destination-based sourcing." This change also enables out-of-state sellers to collect sales tax on purchases shipped to customers in Washington.

When she signed the bill into law, Gregoire noted, "This bill helps level the playing field between in-state and out-of state retailers, helps Washington businesses compete with online businesses, and it allows us to recover sales taxes from out-of-state retailers."

By making it easier for remote sellers to collect and remit sales tax and forgiving any failure to remit sales taxes in the past, Washington is projecting that sales and use taxes from remote sellers may rise above $40 million per year. In addition, the Streamlined Sales Tax legislation addresses complaints from local shops that they sometimes serve as unwitting showrooms for online sellers, where shoppers will go to a store to look at a big-ticket item but then purchase it online to avoid paying sales tax.

Last month, Sen. Michael Enzi (R-WY) introduced in the Senate the "Sales Tax Fairness and Simplification Act," which seeks to help states "efficiently and fairly" collect sales and use tax revenue that is being lost because remote sellers do not have to remit sales and use taxes on catalog and Internet purchases. Enzi noted that, because many online and catalog retailers are exempt from collecting the same taxes that Main Street retailers do, states and localities are losing "billions in lost revenue."

Enzi's legislation would permit states that become voluntary members of the Streamlined Sales and Use Tax Agreement to require remote sellers to collect and remit sales and use taxes. The agreement would help harmonize states sales and use tax rules, bring uniformity to the definitions of items in the sales tax base, reduce the paperwork burden on retailers, and incorporate new technology to modernize administrative procedures. (Read more [4].)