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Thursday, October 06, 2005

Streamlined Sales Tax

By Senator Lyle Hillyard
District 25

I thought some of our blog readers might appreciate a short update on the progress of Streamlined Sales Tax (SST).

For anyone new to the issue, SST aims to modernize our sales and use tax systems to keep up with changes in technology and the explosion of Internet commerce.This is vital because sales and use taxes generate almost one-third of state budgets nationwide. In Utah this means funding for corrections, human services, and supplemental funding for higher education and the general education funds.

We’re also trying to develop uniform applications so businesses selling to out of state buyers will have consistency in how they are treated. SST will simplify the collection of sales tax across state lines. It would provide a more level playing field for "Main Street" businesses and remote sellers as more and more buyers purchase from internet retailers.

Another big reason for SST is old fashioned federalism. When we effectively adapt to a changing world at the state level, the federal government is less likely to try to take over our work.

A report I received at NCSL’s Annual Meeting in Seattle indicated many of the issues that required fine-tuning are being resolved as people focus on the goal of more uniform sales tax laws.

One of the persistent sticky issues had to do with how businesses might outsource their collections in the new system. It turns out that there are at least eight sourcing providers who are ready and able to collect for a business at no cost to that business. The providers’ costs could be recovered by allocating a small reimbursement from the total taxes they collect. Utah allows for compensation at 1.33 percent.

The providers are waiting, however, for the participating states to agree on uniform compensation levels before finalizing their proposals. Some states are struggling because they do not allow companies that collect sales tax to be paid for their work. Our group has consistently contended reimbursement of sourcing providers is an essential part of the SST program.

There seems to be some movement in Congress to tie approval of SST with a Federal Business Activity Tax bill which would remove the ability of states to tax the income of national businesses unless they have a physical presence in that state. The supporters of this idea who presented in Seattle, however, assured us that they saw no tie with SST and the two concepts should stand alone.

The SST subcommittee charged with setting a uniform reimbursement level realizes the urgency of setting that rate. I expect their recommendations to be out shortly. When they do it will go through an approval process in the working group of SST states. The report I received is that the sourcing providers could live with Utah’s reimbursement percentage level – and hope to persuade the non reimbursing states to adopt a similar percentage.

Utah’s representatives on the working group are Rep. Wayne Harper, Jim Olsen, of the Utah Retail Merchants Association, Commissioner Bruce Johnson, and myself.

Anyone interested in SST can find more information at
http://www.ncsl.org/programs/fiscal/tctelcom.htm
and
http://www.streamlinedsalestax.org
I would appreciate thoughtful feedback on this issue.

Best regards,

Lyle Hillyard
State Senator, District 25

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