By Larry Jones
January 16, 2006

On December 20, Senator Michael Enzi (WY) introduced the Sales Tax Fairness and Simplification Act (S.2152), a bill designed to simplify the administration and collection of state and local sales taxes. If enacted, the legislation will grant state and local governments the authority to require out-of'state merchants to collect their taxes. This would enable state and local governments to collect billions of additional dollars in sales tax revenue each year. However, some of the bill’s simplification requirements could cause local governments to lose even more in telecommunication revenues.

Under two previous Supreme Court rulings, state and local governments are prohibited from requiring out-of-state merchants to collect their sales taxes because at the time of the rulings, in the 1967 and again in 1992, the Court determined it would have been too complicated to require merchants to keep up with 7000 different tax systems. Since that time however, states have put together a simplification plan which relies to a large degree on the use of advanced technology to help make the collection process simple and easy for all merchants.

The bill will permit states to participate in a muliti'state compact to streamline the collection of sales and use taxes in accordance with standards outlined in the Streamlined Sales and Use Tax Agreement (SSUTA), which was ratified by participating states on November 12, 2002 and became effective October 3, 2005. Participating states are currently implementing the agreement on a voluntary basis and a number of merchants have agreed to cooperate. Under the legislation once ten states, with a population equal to twenty percent of the total population of all states imposing a sales tax, become a member of the compact for purposes of implementing SSUTA, they will be authorized to require out-of state merchants to collect their taxes.

While the Conference and other local government groups have been generally supportive of the of the simplifications provisions in the bill relative to sales and use taxes, mayors and other local leaders are very concerned about provisions that would apply simplification requirements to transactional taxes on telecommunications. The language in the bill opens the door for the telcom industry to push for an all out ban on the ability of cities to impose fees on a variety of telecommunication services, including rights-of-way fees, per-line subscriber charges and franchise fees. The telcom industry is also pushing to ban special taxes on telecommunications services and instead apply the state and local sales tax to telcom services. In both instances local governments would lose an enormous amount in revenues.

In a joint press release issued on December 22 by the Conference of Mayors, National League of Cities and the Government Finance Officers Association, Conference President Long Beach Mayor Beverly O’Neill said, “Congress is asking us to support a proposal that would provide states and localities additional sales tax revenue in exchange for preempting numerous local telecommunications taxes.” She further commented that, “Our loss in telecommunications revenues will far outweigh the little gain local governments may achieve in sales tax revenue. Anyone can see this is not a balanced quid pro quo and is therefore, unacceptable.”