States Approve Sales Tax Simplification -- A Significant Step Toward E-Fairness

Representatives from 31 states and the District of Columbia approved, on November 12, a proposal to simplify and to modernize sales and use tax administration. The states are part of the Streamlined Sales Tax Project (SSTP), a national initiative seeking to improve sales and use tax collection, especially for online commerce. The plan incorporates uniform definitions within states' and local governments' tax bases, simplified audit and administrative procedures, and improved software to help reduce the burden of tax collection.

Approval of the proposal marks a significant step in the states' efforts to convince the U.S. Congress to pass legislation requiring a national online sale tax collection program. Plans call for the members of the SSTP to request Congress to pass legislation that would enact the sales tax simplification proposal when at least 10 states representing 20 percent of the U.S. population have amended their laws to implement the program, as reported by the Washington Post.

Forty-five states and the District of Columbia require retailers with a physical presence in their states to collect sales taxes. In November 2001, Congress extended a moratorium on any new Internet taxes, which will end in 2003. In 2000 and 2001, ABA, a number of the regional booksellers associations, many individual booksellers, and other members of the E-Fairness Coalition worked to make the case to Congress that a level playing field in retail required a change in the current situation, which, in effect, gives online merchants an advantage over bricks-and-mortar independent and chain retailers, which collect sales taxes.

Commenting on the SSTP proposal, Utah Governor Mike Leavitt said, "This is a 21st century system that will dramatically improve the morass that currently exists. I'm confident that this agreement will be approved by a majority of the states and will mark the beginning of a new phase of this process," as reported by the Post. Maureen Riehl, state and industry relations counsel for the National Retail Federation, noted that "our ultimate goal is that everybody will have to play by the same rules."

The approval of the proposal comes as the fiscal condition of many U.S. states continues to deteriorate. In 2001, there was an approximately $50 billion shortfall in state budgets, and estimates point toward $57 billion shortfall in 2002, as reported by A.P. "It's the worst fiscal situation since the Second World War," said Ray Scheppach, executive director of the National Governors Association (NGA).

Nearly half of state revenues come from sales taxes and more than 40 percent of state spending is dedicated to education, law enforcement, and transportation projects, according to the NGA. Looking ahead, a study commissioned by the Institute for State Studies and prepared by the University of Tennessee with data collected by Forrester Research, Inc., shows major revenue implications for states. By 2006, e-commerce is likely to cause total state and local government revenue loss of approximately $45.2 billion; and in 2011 the loss will be $54.8 billion. The cumulative total of losses between 2001 and 2011 is estimated at $439 billion.