By Larry Jones
October 20, 2003

With strong backing from a broad base of retailers, and state and local groups, Senators Michael Enzi (WY) and Byron Dorgan (SD) introduced the Streamlined Sales and Use Act, S. 1736, on October 15. The proposal would authorize state and local governments to require out-of state merchants (remote sellers) to collect the appropriate taxes. The proposal mirrors a companion House bill, H.R. 3184, introduced September 25 by Representatives Ernest Istook (OK) and William Delahunt (MA). These bills enjoy strong bipartisan support in both chambers.

Twenty seven Mayors (including Conference President Hempstead (NY) Mayor James A. Garner, Past President Chicago Mayor Richard M. Daley and Urban Economic Policy Committee Chairman and Jackson (MS) Mayor Harvey Johnson) attending the Conference Fall Leadership Meeting in Miami, signed an October 14 letter urging all members of Congress to cosponsor and support the immediate passage of the legislation. In the letter, mayors explained that the legislation "is fair to business and state and local governments. It will level the playing field for merchants and create equity among taxpayers regardless of whether they purchase over the counter from a local retailer or over the Internet from a remote seller."

For many years two Supreme Court rulings (Bellas Hess, Inc. v. Illinois in 1967 and Quill Corp. v. North Dakota in 1992) have prohibited state and local governments from requiring remote sellers to collect their taxes. To do so, the Court reasoned, would impose an undue burden on interstate commerce by subjecting remote sellers to costly and complicated tax rules that vary dramatically from state to state. But these decisions were made before people had access to the Internet and the 21st Century technology that is place today. Electronic commerce and remote sales have grown exponentially since then.

Although most states have passed laws requiring residents to pay use taxes on goods purchased from remote sellers, they have not been able to enforce them due to the Supreme Court rulings. Consequently, billions of dollars go uncollected each year on Internet and other remote sales transactions. In a recent study, it was estimated that state and local governments will lose $44 billion in revenues in 2006 and 55 billion by 2011.

The proposed legislation addresses the concerns raised by the Court to promote simplification and fairness in the administration and collection of state and local taxes. Under the proposed legislation, Congress would authorize state and local governments to require remote sellers to collect their taxes after they comply with certain uniform simplification standards outlined in the Streamlined Sales and Use Tax Agreement. These were developed in close cooperation with retailers and other business interests. After receiving broad-base support, the Agreement was adopted last November by 34 states and the District of Columbia. It outlines a set of simplification criteria that each state must meet in order to obtain authority to require the collection of their taxes.

States would participate in the Agreement on a voluntary basis. By participating, they must make the necessary changes in their tax laws to comply with the simplifications criteria. In so doing, the collection process would be made simple for all retailers, and reduce the business related cost as well as the administrative burdens of collecting taxes.

Since last year 20 states with over 30 percent of the nation's population have enacted legislation making the necessary adjustments to their tax laws to comply with the simplification requirements in the Agreement. This puts them ahead of the benchmark set in the legislation. Under the proposal, states would be granted authorization to require the collection of taxes after 10 states comprising at least 20 percent of the total population joined the Agreement and comply with the simplification requirements.