States of the Union

States back a uniform sales-tax system that would raise additional revenue. What will the change mean for you?
Magazine Contributor
3 min read

This story appears in the February 2004 issue of Entrepreneur. Subscribe »

Strapped by an eroding sales-tax base, many states are pushing for a streamlined tax system through adoption of the Streamlined Sales Tax Agreement. Under this multistate agreement, member states would collect sales tax on interstate sales using uniform rules. The aim is to capture some of the taxes states are losing on mail order and other remote sales. If it becomes operational, the streamlined tax will have a big impact on any business that sells products, and those with lots of multistate sales will be most impacted, says Mike Stewart of Waller, Lansden, Dortch & Davis in Nashville, Tennessee.

Currently, a state can't collect sales taxes on merchandise that a business sells in another state unless that business has a small sales force, a company plant or an office in that other state. But under a streamlined system, that will change. Companies will be responsible for collecting sales tax not only for in-state sales, but for remote sales as well.

It may be only a matter of time before a uniform sales-tax system is in place, Stewart says. If enough states get behind this drive, Congress will eventually be willing to step in and use its power to allow states to use a uniform system. A bill currently in Congress would authorize collection of sales and use taxes from mail order and other remote sales. "There is a big incentive to pass this legislation because lawmakers know that local officials need additional revenue for new federal responsibilities and mandates that are increasingly being passed on to state and local governments," says Stewart.

While a streamlined sales tax would be a national agreement, each state would have to opt in and amend its own laws to be in compliance. This is sure to cause complexity and new paperwork requirements. Business owners should start preparing now for the change. "Coming into compliance will be tricky for businesses," Stewart warns. Small to midsize businesses most likely will contract with professional software companies, known as certified service providers, that are currently developing accounting systems that will allow them to act as agents for business owners and track sales nationally. The providers will essentially take care of a seller's sales-tax collection obligations, Stewart explains.

Business owners should keep their customers informed of the change. Many mail order customers are sure to be surprised by this new development.

The streamlined tax drive is not all bad. This effort will offer businesses an opportunity to set the record straight. In many states, business owners who are willing to register and come into compliance can get amnesty under the streamlined system for taxes previously not collected. Watch this space for updates.

Great Falls, Virginia, writer Joan Szabo has reported on tax issues for 17 years.

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