A discussion draft of the Online Sales Tax Simplification Act of 2016 is expected to be introduced in Congress soon.
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“I’ve been observing legislative efforts to support the SST for several years, and this year there is a stronger mood than ever in Congress to back legislation,” says Stephen Kranz, an attorney and state tax specialist who represents retail chains as well as web-only retailers as a partner in the Washington, D.C., office of law firm Sutherland Asbill & Brennan LLP.
Make that late this year, after the November Congressional elections, he adds. With states facing huge budget shortfalls and Congress facing pressure to cut the federal deficit, many congressmen can be expected—once the elections are behind them—to look favorably on granting states the power to collect tax revenue that is already due them under existing law, Kranz says.
But others are skeptical. “I think there’s little chance this will pass this session,” says Daniel Schibley, a state tax analyst at CCH Inc., a unit of Wolters Kluwer that publishes tax and legal information. He argues that, to win over Congress, the SST will first need to sign up as members large states like New York and California.
Overriding the states
Should Congress act, the federal law would make largely irrelevant the slew of state laws and legislative proposals in New York, Colorado, North Carolina and other states aimed at forcing Internet and catalog retailers to collect sales tax.
Indeed, that irrelevancy is just what some major retailers would like to see. The National Retail Federation, which represents retail chains and, through its Shop.org division, online retailers, contends that the new crop of state sales tax laws address only partial solutions, and in some cases are unconstitutional. Those state efforts, the organization fears, reduce the pressure to pass the more comprehensive SST, which NRF supports.
The Direct Marketing Association, in a move that puts it squarely against the NRF, opposes the pending federal legislation and contends the SST has failed to bring consistency to the processing of local sales tax.
“The SST has become increasingly complicated,” asserts George Isaacson, an attorney with the Lewiston, Me., law firm of Brann & Isaacson, which represents the DMA.
For instance, he says, in some states it is the locality where the retailer is based that charges the sales tax while in others it’s the consumer’s local government. That makes retailers’ record-keeping more costly, he says, at least for purchases within a state. For interstate shipments, the SST decrees that the customer’s state and local government charges the sales tax.
Although the certified software applications are designed to automatically calculate local as well as state taxes and account for the differing systems among states, Peterson admits that differences in local taxing systems require some retailers to maintain more records than others. Retailers with multiple shipping facilities, for example, have to keep two record systems, one for shipments from states that charge local sales tax at the retailer’s location and one for shipments from other states.
But Peterson contends such criticisms overlook both the progress the SST has made in meeting the primary task it was given by states—to standardize sales tax rules across states, letting retailers know which items are covered and how taxes are to be applied—and the political reality of administering local taxes in many states.
Although the SST has suggested that all states go to a single statewide sales tax rate—then divide the revenue among local jurisdictions—that is unlikely to happen in all states because many local jurisdictions refuse to give up the right to raise their own tax revenue, he says.
Meantime, the SST promises to continue working with merchants and states to improve how sales tax is collected. “We’ll never stop trying to make the system better,” Peterson says.
Online retailers may soon become acquainted with the SST’s work. If sales tax supporters have done their political homework, web retailers could soon be forced to collect sales tax on most purchases.