The National Governor’s Association (NGA) and the National Conference of State L
ID: 2743549 • Letter: T
Question
The National Governor’s Association (NGA) and the National Conference of State Legislatures (NCSL) created the Streamlined Sales and Use Tax in the fall of 1999 to simplify sales tax collection. It encourages "remote sellers" selling over the Internet and by mail order to collect tax on sales to customers living in the Streamlined states. Review the information on this site about the Streamlines Sales and Use Tax Agreement. http://www.streamlinedsalestax.org/index.php?page=faqs Post your feelings about the Streamlined Sales and Use Tax Agreement and how it effects states sales tax income. In 75 to 150 words.
Explanation / Answer
What is the Streamlined Sales and Use Tax Agreement?
Answer: 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?
ANSWER: 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 revelant in 21st century commerce. This findings resulted in the nation's governors directing their tax administrators to develope a simpler, business-friendly sales tax system.
How does the Agreement simplify sales tax administration?
Answer: 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.
Are the states trying to tax the Internet?
Answer: Absolutely not! The Internet Tax Freedom Act created a moratorium on any new, multiple or discriminatory taxes on electronic commerce.
How do uniform definitions reduce business administrative expenses?
Answer: 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 technology ease the tax collection burden?
Answer: 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 six certified companies and there will be more in the future.
How do rate and boundary databases reduce business administrative expenses?
Answer: 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?
Answer: 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 audit procedures reduce business administrative expenses?
Answer: 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 rate simplification reduce business administrative expenses?
Answer: 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 does uniform exemption administration reduce business administrative expenses?
Answer: No longer do states punish the seller when they sell something tax exempt to a purchaser 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 does state funding reduce business administrative expenses?
Answer: 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.
How do uniform sourcing rules reduce business administrative expenses?
ANSWER: 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.
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