Michigan Passes Legislation to Streamline Sales Tax

On Thursday, May 20, Michigan's House of Representatives passed legislation that would streamline the tax codes to make it easier for businesses to collect state sales and use tax on Internet and catalog purchases, the Associated Press reported. Rep. Lorence Wenke (R-Richland), chairperson of the House Tax Policy Committee, introduced the main bill in the four-bill package (H.B. 5502 - 5) and stressed, "This is not a new tax, but rather a tax already owed by Michigan citizens. We should ask everyone to pay their fair share of taxes," as reported by A.P.

The bills, which now go to the Senate, would allow Michigan to become part of the Streamlined Sales Tax Project (SSTP), a national compact made between 34 states and the District of Columbia that outlines a comprehensive system to simplify the states' sales tax rules and to dramatically reduce red tape for America's businesses.

SSTP will make it easier for online and other retailers that do business in multiple states to calculate, collect, and remit existing use tax, according to the National Governors Association (NGA). States looking to join the pact are required to simplify their tax codes before joining. Thus far, 20 states have passed compliance legislation to modernize and simplify their tax laws to conform to the model interstate agreement, according to NGA. (SSTP becomes effective once 10 states representing 20 percent of the population of the states with sales taxes pass compliance legislation.)

In September 2003, Representatives Ernest Istook (R-OK) and William Delahunt (D-MA) introduced in the House the Streamlined Sales and Use Tax Agreement (SSUTA, H.R. 3184), legislation that would grant authority to a national simplification agreement. At present, H.R. 3184 has 32 co-sponsors.

In October 2003, Senator Michael Enzi (R-WY) and Senator Byron Dorgan (D-ND) introduced similar legislation, S. 1736, the Streamlined Sales and Use Tax Act (SSUTA), in the Senate. If enacted, these bills would help states begin to recover from years of budgetary shortfalls by collecting revenue lost through catalog and Internet purchases. The bill has 20 co-sponsors.

In related news, this year, California and New York were two states that added a new line -- though not a new tax -- to their respective tax forms that asked residents to report and pay sales tax on all of their out-of-state purchases. Both states added the new line in an effort to collect tax revenue due, but rarely reported and submitted by residents who bought from out-of-state retailers.

However, the result was dramatically different for the two states. According to the Inland Valley Daily Bulletin, California had hoped to raise $13 million in taxes from the new effort -- barely one percent of the estimated $1.2 billion of uncollected sales and use taxes for purchases California state residents made via the Internet or telephone from out-of-state retailers. However, with two-thirds of 2003 returns already processed, the state has garnered just over $760,000.

Meanwhile, the news was better in New York State, where, as of May 14, just over 7.2 million tax returns have been processed, out of an eventual 10.5 million returns expected for 2003. Just fewer than 268,000 tax returns, or 3.72 percent of the returns, had a figure, from zero dollars up, entered on line 56 -- the line where New York State residents were asked to report out-of-state sales tax. However, that has amounted to $10.5 million in revenue that "otherwise would have gone uncollected," Tom Bergin, spokesperson for the New York State Department of Taxation and Finance, told BTW.

"Our research shows that first-year compliance rates are around 1 percent," Bergin continued. "So, we're doing better than [the average] first year efforts. We can't say yet whether we're successful or not, but we're above other first year efforts." --David Grogan