What’s New With the Streamlined Sales Tax Project?

I’ve been keeping my eyes on the Streamlined Sales Tax Project for awhile now, checking in to see which states are members, which states aren’t, and which states are in the process of joining.

In a lot of ways the SST makes sense. It would end nexus shopping, and the lure of state-line shopping from a high-tax state into a lower-tax state (i.e., Californians popping over to Oregon), assuming that both states charged a sales tax. So some recent news about SST surprised me.

What is SST?

The idea behind the SST is simple: change the way we charge sales tax from source-based (you pay where you buy) to destination-based (you pay where you live). It’s been kicking around for several years now, slowly and quietly working towards gathering the two-thirds of states required to bring it into action.

Enacting SST is a Tough Proposition!

It hasn’t been easy. 50 state tax systems to standardize is a mountainous task. Many states like the idea of getting more revenue, but are noticeably cooler towards the idea of potentially losing some revenue. Other states have city tax issues to consider - Texas, for example, was signed on to SST but ran into a snag when some cities refused to change their source-based taxation. New Jersey objected to some of the definitions of what was and wasn’t taxable in the SST, and wanted to invent some new words to allow them to continue taxing goods that would otherwise not be taxable. And in still other cases, states need to change their constitutions or internal laws to allow them to become or stay in compliance with SST regulations. That often involves a public vote, which doesn’t always go the right way.

One Step Forward, Two Steps Back …

In a recent compliance review, SST organizers found that, out of 5 states surveyed, 3 were out of compliance with SST requirements. While Arkansas and Kansas were found to be fine:

• Indiana has not enacted the current definition of “sales price” in the Agreement. Although a representative of the state said that the definition will be amended during the 2009 session of the Indiana Legislature, the CRICdetermined that it had to make its finding based on the state’s current law.
• Iowa was found to have problems with its “sales price” definition similar to those of Indiana and to have shortcomings in its telecommunications provisions.
• Kentucky was found out of compliance because it has a use-based exemption for hospital beds that is contrary to restrictions in the Agreement. Richard Dobson, Kentucky Department of Revenue, said the Legislature will be asked during the next session to expand the exemption in such a way that it will satisfy the Agreement’s requirements.

It’s a good thing they didn’t include Nevada in that survey, or it might be 4 out of 6. In our state election, the ballot question intended to bring this state into full compliance with SST was turned down by the voters. What that means now, I’m not sure - it’s up to the SST committee. The state could be asked to leave the agreement, or asked to stay on as an affiliate rather than a full, voting member. That could leave the state obliged to participate but with no vote in the process, which isn’t good for anyone.

Eventually I believe the SST will be resolved, but it sure doesn’t look to be any time soon!