Frequently Asked Questions

What is the Streamlined Sales and Use Tax Agreement?

This Agreement is the result of the cooperative effort of 44 states, the District of Columbia, local governments and the business community to simplify sales and use tax collection and administration by retailers and states.  The Agreement minimizes costs and administrative burdens on retailers that collect sales tax, particularly retailers operating in multiple states.  It encourages "remote sellers" selling over the Internet and by mail order to collect tax on sales to customers living in the Streamlined states.  It levels the playing field so that local "brick-and-mortar" stores and remote sellers operate under the same rules. This Agreement ensures that all retailers can conduct their business in a fair, competitive environment.

Why was the Streamlined Sales Tax created?

The Streamlined Sales and Use Tax was created by the National Governor’s Association (NGA) and the National Conference of State Legislatures (NCSL) in the fall of 1999 to simplify sales tax collection.  According to the 2007 U.S. Census, general sales and gross receipts comprise nearly 32 percent of total state tax collections.  The sales tax is second only to personal income taxes as the largest source of state revenue.  Leaders from the NGA and NCSL are members of the Advisory Commission on Electronic Commerce that was created when the Internet Tax Freedom Act was passed.  As a result of the work of this Commission, the leaders of those two organizations were concerned that a 1930’s sales tax would not be relevant in 21^st century commerce.  This finding resulted in the nation’s governors directing their tax administrators to develop a simpler, business-friendly sales tax system.

How many states have passed legislation conforming to the Agreement?

To date, twenty-three of the forty-four states have passed the conforming legislation.  Those states have a total population of 92,781,860 representing 33% of the country’s population.  The following states that have passed legislation to conform to the Streamlined Sale and Use Tax Agreement: Arkansas, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, Nevada, New Jersey, North Carolina, North Dakota, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Vermont, Washington, West Virginia, Wisconsin and Wyoming.

Recently, conforming legislation was introduced in Texas, Massachusetts, Florida, Illinois, Virginia, Missouri, Maine, Wisconsin, California, and Hawaii.

How does the Agreement simplify sales tax administration?

Sales tax administration is improved through tax law simplification, more efficient administrative procedures, and emerging technologies.  Sales tax simplification results from: uniform tax definitions; uniform and simpler exemption administration; rate simplification; state-level administration of all sales taxes, uniform sourcing (where the sale is taxable); and state funding of the administrative cost.

Why must there be a federal solution?

Local brick-and-mortar stores operate at a competitive disadvantage with remote sellers who don’t collect or pay taxes.  Local stores find themselves serving as showrooms for Internet and catalog sellers.  Prospective customers check out the merchandise locally but buy the product online or through a catalog to avoid paying sales tax.  Local merchants are at a competitive price disadvantage simply because remote sellers do not collect sales tax.

The U.S. Supreme Court in 1992 said in Quill vs. North Dakota that Congress has the power under the Commerce Clause to create a level playing field for local merchants.

Twelve hundred retailers collect sales tax in Streamlined states under a voluntary system.  Those 1,200 retailers have collected over $468 million in sales tax for Streamlined states, but that is a very small fraction of the amount of sales tax that remains uncollected.  Some studies estimate that states lose billions a year in uncollected sales tax and it could reach as much as $23 billion by 2012.  Only Congress has the authority to let states require collection of the billions of dollars in uncollected sales tax.  Now that these states have made tax collection simple and easy for retailers, Congress can adopt legislation that applies to the products and services sold by remote sellers.

What are "remote sellers"?

Remote sellers are businesses that sell their products to customers in a state, using the Internet, mail order, or telephone, without having a physical presence in that state.  The U.S. Supreme Court has ruled that, until Congress acts, states cannot currently require sellers to collect and remit sales tax unless the seller has a physical presence in the state.

Are the states trying to tax the Internet?

Absolutely not!  The Internet Tax Freedom Act created a moratorium on any new, multiple or discriminatory taxes on electronic commerce.

How does technology ease the tax collection burden?

Most businesses use software to manage their sales tax responsibility.  The states partnered with the private sector suppliers of sales tax administration software to certify the accuracy of their software.  The states also help pay for the software for some retailers.  These certified software packages do not slow down the sales process because they are quick and easy to use.  Any business that uses Streamlined - certified software is immune from audit liability for the sales they process through that software.  In addition, the states pay the cost of this service for any business that does not have a physical presence in the state.  There are currently four certified companies and there will be more in the future.

How do uniform definitions reduce business administrative expenses?

While states do not vary much in the products and services they tax or exempt, they do vary significantly in how they define these products and services.  A business selling a product or service in multiple states must know not only what is or is not taxable in each state, but also how one state’s definition differs from other states.  The Agreement defines sixty-nine different administrative terms and products and services that states either tax or exempt.  A business making sales into a Streamlined state only needs to know whether the product or service they sell is taxable or exempt.  Businesses no longer have to wonder how one state’s definition differs from another state.

How does rate simplification reduce business administrative expenses?

A Streamlined state has one state tax rate, but can have a second (generally lower) state rate in limited circumstances (food and drugs).  Each local jurisdiction has one local rate.  A state or local government may not choose to tax telecommunications services, for example, at one rate and all other items of tangible personal property or taxable services at another rate.  State and local governments must provide ample notice of tax rate changes and changes to local government boundaries.

How do rate and boundary databases reduce business administrative expenses?

One of the most difficult tax administration issues for businesses is keeping up with the local taxes and knowing when a sale is inside or outside a local government jurisdiction.  Each Streamlined state must provide a database with the tax rate for every local jurisdiction.  In addition, each state must provide a database that matches a local tax rate with each 9 digit zip code in every local jurisdiction.  A business can look up one address at a time on-line or download the entire database.  The states must make the databases available to any business that wants to use them and the state certifies the accuracy of the databases.  The states hold a business harmless so that it is never liable for charging too much or too little tax based on this information.

How does state level tax administration reduce business administrative expenses?

Businesses do not have to file tax returns with each jurisdiction in which it sells a product or service.  Each state provides a central point of administration for all state and local sales and use taxes and distributes the local taxes to the local governments.  Each state also requires its local governments to tax and exempt the same products and services as the state.  This minimizes the information a business must know to conduct business in a state.

How do uniform sourcing rules reduce business administrative expenses?

The states have standard and simple rules for how they source transactions to state and local governments.  A business does not have to worry that two states will try to tax the same sale.  A business has clear rules on which state’s sales tax to charge.

How does uniform exemption administration reduce business administrative expenses?

No longer do states punish the seller when they sell something tax exempt to a seller who should have been charged the sales tax.  Purchasers are responsible for paying the tax, interest and penalties for claiming incorrect exemptions.  Purchasers have one uniform exemption certificate they can use in all the Streamlined states and they can use either the paper version or the electronic version.

How do uniform audit procedures reduce business administrative expenses?

Sellers who use the certified sales tax administration software are either not audited or have limited scope audits.  Large multi-state businesses can request a joint audit from all the states instead of being audited by each state.

How does state funding reduce business administrative expenses?

No matter how simple the sales tax is to administer, a business must collect the tax and file a tax return.  The Federal legislation requires states to pay businesses reasonable expenses associated with collecting sales taxes.  In addition, the states pay the cost of the certified service provider for businesses without a physical presence in the state.