The Streamlined Sales Tax Project (“SSTP”) was conceived around the year 2000. To understand the impetus for the SSTP, it’s necessary to look back several decades. Since the inception of the accepted sales and use tax structure in the 1940s, states have long sought to extend their collection reach to companies that did not have a permanent place of business in their state but yet sold products to customers in their state. This problem existed well before the phrases “remote commerce” or “remote sellers” became the vernacular. The efforts of sates to collect tax on these out-of-state sellers began when these companies would send employees or independent contractors into states to meet face-to-face with customers. These were called “missionary salesmen” because they would often be gone for days or weeks at a time traveling from state to state to solicit a market for the goods and services their companies provided.
The missionary sales method evolved to mail order catalog sales, then to the TV home shopping networks, then to the Internet and eCommerce. At each step along the remote selling evolution trail, the states were pressing hard to have their sales taxes collected from customers by these sellers, even if the seller did not have a physical presence in the customer’s state. States changed their laws, forced companies into litigation over these matters, and have worked hard for the passage of federal legislation authorizing the tax collection.
As the companies were forced to litigate these issues, a certain element of sympathy to their plight was expressed by the courts as they issued their rulings. The out-of-state companies would first argue that they don’t have nexus in the state and don’t have a legal obligation to collect the tax. Secondly, they would argue that even if they did have nexus, the huge burden of complying with the tax laws in 45 states was beyond their capability and created a burden on interstate commerce that was unconstitutional. These companies were saying that the system is just too complicated with multiple sales tax rates, multiples tax rules, multiple audits, multiple certificates, etc. to implement a cost effective sales tax collection process.
In response to this argument, several state tax administrators gathered and decided to make the process simpler and more “streamlined” so that this burden could no longer be used as argument against collecting the state taxes imposed by the various states. Ultimately, these administrators were hoping that if the streamlined system could be adopted by enough states, Congress would be less reluctant to pass legislation that would authorize states to require sales tax be collected by all companies on all remote sales regardless of nexus. After all, they thought, if we make it simple these remote sellers will lose their primary argument.
In 2000, the Streamlined Sales Tax Governing Board was formed and the first draft of the SSTP guideline was passed. The SSTP’s stated purpose is:
to provide a road map for states who want to simplify and modernize sales and use tax administration in the member states in order to substantially reduce the burden of tax compliance. The Agreement focuses on improving sales and use tax administration systems for all sellers and for all types of commerce…
Over the past 15 years, the SSTP has flourished at times and been on life-support at times. The first challenge was getting 20 “member” states to legislatively adopt the model sales tax language that was the first step to “simplifying” the sales tax laws. The next challenge was keeping the 20 member states in compliance with the agreement because, as state legislatures are want to do, some states immediately started changing the statutes to revise definitions, change procedures, and adopt state specific exceptions to these rules. Some states dropped out and other states were added. Today the member states are: Arkansas, Georgia, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, Nevada, New Jersey, North Carolina, North Dakota, Oklahoma, Rhode Island, South Dakota, Utah, Vermont, Washington, West Virginia, Wisconsin, and Wyoming. In addition to these 22 member states, Tennessee is an affiliate member. Noticeably missing from this list of states are California, Florida, Illinois, New York and Texas.
The SSTP agreement is over 225 pages long plus there are numerous rules and interpretations issued by the Governing board. For a complete review of these provisions please see http://www.streamlinedsalestax.org/. The SSTP is multifaceted and provides rules and guidelines for state tax administrators, for certified software providers, and for taxpayers. The ultimate goal of the SSTP is to encourage the registration of retailers and other companies in states where they have customers but may not have nexus. As an intermediary step, the SSTP provides a structure for a centralized registration with all the SSTP member states.
Under this centralized registration process, companies can select which of the 23 member or associate state that they wish to register in. Once registered, the seller must collect and remit sales and use tax for all the taxable sales into the member states chosen by the taxpayer. This registration also includes states that may join the SSTP at a later date. Additional registration materials are likely to be needed in the specific states.
The benefit to registering may include a limited amnesty in some states, the ability to use certified sales tax administrative software, and a uniform tax registration number that is sued to file returns in the member states. To date, there are about 2,500 businesses registered with the SSTP. Each company must evaluate the benefit of this registration against the alternatives from registering separately in each state.
One of the early features of the SSTP was a very broad amnesty program for unregistered companies that may have had nexus in some states but had not filed or remitted tax. When the SSTP first started, companies could obtain total forgiveness for past due taxes in the member state if they agreed to register in register in all of the member states and remain registered for a period of 36 months. This initial amnesty program expired many years ago. Currently, amnesty programs exist in Ohio, Tennessee, and Utah however the requirement to file in all the 22 member states still seems to be a requirement to get the amnesty in these three states. Not quite so attractive now!
State Tax Changes
Even if your business does not elect to register with the SSTP or participate in the amnesty program, it is still likely that you are impacted by the SSTP if you are located in any one of the 23 member or affiliate states or are currently registered and filing in any of these states. A condition of a state being a “full member state” of the SSTP is that the sales tax statutes of your state be changed to come into uniformity with a the model code of the SSTP. To date, these changes have been mostly about uniform definitions. However, the SSTP requires that certain administrative provisions be adopted will that impact all businesses. For example, the SSTP requires that a uniform rate of tax apply to interstate tax transactions. In addition, there are special provisions about sales tax holiday’s and rules about the ‘good faith’ acceptance of resale certificates.
Influence of the SSTP
As more sales tax provisions are adopted by the SSTP governing board and pushed out to member states for adoption, the goal of making sales tax more streamlined and simpler seems to be getting lost. In dealing with member states in sales tax audit situations there is great confusion about the actual impact that the SSTP rules and new statues are having on tax administrators. This can work to your advantage or disadvantage. I was recently at a hearing with a Department of Revenue and was challenging the “legal authority” the state was using for a particular element of the audit. The auditor had found a proposed SSTP rule that another member state was offering and the auditor was attempting to use that proposed rule as her authority in the audit. When I pressed them she said that because the state was a member of the SSTP, they could pretty much do what they wanted! The hearing officer disagreed and I won the issue. So be careful if you hear auditors make these sorts of statements.
Now that the SSTP governing board has been functioning for over 15 years and there is still no real Congressional relief on the horizon, the SSTP seems to be taking on a life of its own by becoming a quasi-legislative body that has significant influence over the member states. This influence is far greater than the Multistate Tax Commission or the Federation of Tax Administrators. In the most recent version of the Marketplace Fairness Act (“MFA”), the influence of the SSTP is clearly apparent. In essence, if the MFA passes, only those states that had adopted the SSTP provisions would be allowed to force the remote sellers to collect tax. Without adopting the SSTP provisions, the mechanism to force compliance was much more difficult.
What I fully expect next is for the SSTP to move from the administrative side of sales tax to the substantive side of sales tax. That is, they may next start telling states what items of property and service are taxable and what types of exemptions can and cannot be provided in the “member states.” All this would be framed as “simplification.” The states would be forced to conform or would be kicked out of the club. At that point, the state will have lost their ability to craft the tax laws as they see fit to administer their own finances. This would then become the federalization of state sales tax. I suspect this may be why key states like California, Texas, Illinois, Florida, and New York have remained on the sidelines and may never join.
The 22 member SSTP member states have remained stable for the past several years. Some states are growing weary of the confines placed on them by the SSTP governing board and are starting to request waivers from the SSTP provisions. Some member states have even been threatened with expulsion if they don’t come back into conformity. Even if your company does not participate in the registration or amnesty provision of the SSTP, you may still feel the impact of the SSTP if you do business in any of the member or affiliate states.