Sales tax law brings state in step with effort to simplify system

ORIGINALLY WRITTEN JANET HAMOUS
The new sales-tax law brings Kansas sales and use tax laws into conformity with the requirements of the Streamlined Sales and Use Tax Agreement.

The Streamlined Sales Tax Project is a joint effort by state and local governments and the business community to reform the sales tax system by simplifying tax law and making it more uniform. A by-product of that work may be the leveling of the playing field for all retailers.

Currently, retailers that have a physical presence in a state are required to collect sales taxes from consumers.

Businesses that do not have a physical presence in the same state as the consumer are not required to collect and remit taxes.

This gives online and catalog sellers a competitive advantage over main street businesses and other traditional retailers that must collect a sales tax on all transactions.

In addition, it means lost revenues for state and local governments, threatening funding for essential government services like schools, law enforcement and transportation projects.

A 1999 study conducted by the University of Tennessee projected Kansas revenue losses from e-commerce would total $542 million a year in 2011.

The Internet is not a tax-free zone. Technically, consumers who are not taxed on Internet sales are supposed to pay the sales tax owed. But most consumers don’t know this, and the states have no effective mechanism for collecting the tax nor any way to enforce the payment. So most out-of-state Internet transactions go untaxed.

In 1992, the U.S. Supreme Court ruled that before states may require out-of-state retailers to collect and remit sales tax, the states must first simplify their sales tax laws.

This ruling was based on the fact that America’s sales tax laws are too complex and burdensome for retailers that do business in multiple states. The country has roughly 7,500 taxing jurisdictions across the country, with different laws, tax rates and definitions of what is taxable.

For example, orange juice is classified and taxed as a fruit in one state and classified as a beverage and not taxed in another state.

Such variation makes it difficult for online sellers and mail order companies to calculate, collect and remit taxes based on a customer’s location.

The SSTP was created to change that.

“Our initial goal had nothing to do with the collection of more taxes,” said Scott Peterson, co-chair of the national project. “Our initial goal was to create a system that cost retailers less money to administer.

“Now, throughout this last three years, it’s dawned on everyone that if you have a simpler system, perhaps you will go so simple and be so uniform and cost so little money that it’s no longer an undue burden on interstate commerce and that perhaps the Supreme Court would overturn its decision on sales tax.”

Only the Supreme Court or Congress has the power to require out-of-state sellers to collect and remit use taxes, and it’s not clear right now when or if that will happen.

Until it does, those involved with the project hope that by simplifying the tax system and providing free software to help retailers calculate, collect and remit the taxes owed on remote sales, multi-state merchants will voluntarily collect and remit the tax on sales to customers in states where they do not currently have a physical presence and a legal obligation to collect.

By passing the legislation now, Kansas becomes a “member” of the multi-state agreement that will permit joint administration of some of the simplification and uniformity standards that are expected to ultimately result in increased state tax revenues.

“The agreement goes into effect once at least 10 states with at least 20 percent of the total population of the states imposing a sales tax have come into compliance,” Peterson said. “So far, I’ve got 15 states representing 46 million people. We need almost 55 million people.”

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