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Simplifying state tax collection.

Does the prospect of navigating the nation's 7,500-plus taxing jurisdictions leave you quivering? Or what about the possibility of being audited by a state over your tax collection obligations?

More than 20 states have agreed to a common set of definitions and procedures for taxing product categories under the Streamlined Sales Tax Project, an effort to radically simplify sales and use taxes. But perhaps more important, the states are encouraging companies to comply by footing the bill for automated processes that make compliance virtually painless.

"We realized there would be no easy way for companies to handle compliance," says Scott Peterson, executive director of the SSTP governing board. "So we've certified three companies-Avalara, Exactor and Taxware-that SSTP member states will pay to provide compliance software and services to participating companies."

At present, SSTP participation is still voluntary for companies that don't have a physical presence in a given state. But more states are taking a close look at the definition of "physical presence," says Jared Vogt, CEO of Bainbridge Island, Washington-based Avalara, who notes that having a sales rep or attending a trade show in a given state can be enough of a presence to trigger tax obligations.

With state coffers dwindling and a dire amount of lost tax attributed to out-of-state purchases-estimated at $15.5 billion to $21.5 billion a year-audit enforcement efforts are likely to grow more vigilant. "It's hard for states to ignore the money they're losing," says Vogt. "I suspect they'll try to scare people a bit."

Jennifer Pelletis a freelance writer specializing in business and finance.

This story appears in the November 2006 issue of Entrepreneur. Subscribe »