By Larry Jones
November 18, 2002

At an historic November 12 meeting in Chicago, representatives from 31 states voted unanimously in favor of a tax simplification plan that, if implemented, could help state and local governments collect taxes on remote sales, particularly transactions conducted over the Internet and through mail orders. Under current law (two Supreme Court rulings: the Bellas Hess decision in 1967 and the Quill decision in 1992), state and local governments cannot force out- of-state merchants such as Internet retailers and mail order houses to collect their sales or use tax because it would be overly burdensome to require them to keep up with thousands of different tax rates and administrative rules. Based on a study released by the University of Tennessee last yeBy approving the plan, most states have agreed to the terms of the Streamlined Sales and Use Tax Agreement, which lays out the reforms that each state must follow to simplify and modernize their tax systems. States involved in this effort must now enact implementing legislation to bring their sales and use taxes in conformity with the uniform simplification standards called for in the agreement. The agreement will become effective once 10 states, comprising at least 20 percent of the total population of states with a sales tax, pass implementing legislation. After these reforms are implemented, it should be easy for Internet retailers and mail order houses to collect state and local sales taxes. One of the key reforms that will help facilitate collSome of the key reforms called for in the agreement will:

By approving the plan, most states have agreed to the terms of the Streamlined Sales and Use Tax Agreement, which lays out the reforms that each state must follow to simplify and modernize their tax systems. States involved in this effort must now enact implementing legislation to bring their sales and use taxes in conformity with the uniform simplification standards called for in the agreement. The agreement will become effective once 10 states, comprising at least 20 percent of the total population of states with a sales tax, pass implementing legislation. After these reforms are implemented, it should be easy for Internet retailers and mail order houses to collect state and local sales taxes. One of the key reforms that will help facilitate collSome of the key reforms called for in the agreement will:

Some of the key reforms called for in the agreement will:

• require state and local governments to have an identical tax base by 2006;
• limit each local government to a single sales tax rate while states will be limited to one general tax rate with the option of a second rate that could be zero;
• centralize administration of state and local sales and use taxes;
• require uniform definitions for common sales tax terms;
• require uniform rules for sourcing, rounding and the treatment of bad debt;
• require simplified administration of tax exemptions;
• require simplified return and tax remittance procedures; and
• require the protection of consumer privacy.

The Conference and other state and local groups support the agreement and are discussing a joint strategy to help urge enough states to enact implementing legislation. Reaction from the business community has been mixed, with brick-and-mortar retailers voicing strong support for the measure because they believe it will help create a more level playing field since the measure calls for Internet retailers to collect the same taxes that they are currently required to collect. But the Direct Marketing Association, who represents catalogue mail order houses, opposes the measure because, in its view, the measure fails to achieve simplification.