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Are Internet Taxes Coming Soon?

Tacking taxes onto internet sales could soon become mandatory.

While e-tailers can now voluntarily collect and remit sales taxes on sales originating in the 19 states that have signed on to the Streamlined Sales and Use Tax Agreement, it's hard to say if they actually will.

Created in 2002 by the Streamlined Sales Tax Project, the SSUTA aims to make it easier for retailers doing business in multiple states to calculate, collect and remit existing use taxes. The SSUTA took effect on October 1, 2005.

While it's currently a voluntary program, if mandated by law, the SSUTA would require businesses to collect and remit sales taxes for the 7,600 different sales-tax jurisdictions in the U.S. Under current law, only businesses with a physical presence, or "nexus," within a tax jurisdiction are required to collect that jurisdiction's sales tax. Mark Micali, vice president of government affairs at the Direct Marketing Association in Washington, DC, sees little reason for small e-tailers to participate in the voluntary program: "[SSUTA] creates a barrier to entry for small entrepreneurs who rely on the internet to help them create markets."

What's more, despite promises from SSUTA's organizers that free software would be available to help make tax collection and remittance simple for participating retailers, many still would not be able to afford the cost of collecting and remitting sales taxes for each of the thousands of jurisdictions, "much less the cost of a possible audit at any time by 46 different state revenue departments," says Micali.

It's hard to say if the SSUTA could become mandatory. For several years, bills to make sales-tax collection mandatory have been introduced in Congress, but none have ever been signed into law. The fact that 19 states have signed on to allow voluntary collection means the movement is gaining traction, though.

To learn more about internet sales tax, check out www.davidhardesty.com, www.salestaxinstitute.comand www.streamlinedsalestax.org

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This article was originally published in the February 2006 print edition of Entrepreneur with the headline: Time to Collect?.

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