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"STREAMLINED" SALES TAX

October 05, 2005

I don't have a lot to say about the "Streamlined Sales Tax Program," or SSTP, beyond what Chris Atkins says in the Tax Policy Blog:

The SSTP was successful because, in the end, it delivered important goals to both the state revenue departments and the business community. The former was concerned about the erosion of the sales tax base caused by purchases made through catalogues or over the Internet—taxes which are essentially uncollectable because of the Quill decision. The latter was concerned about the complexity of complying with over 7,000 distinct state and local sales tax jurisdictions. By simplifying the system and making it easier to collect sales taxes, both sides got what they wanted.

The Supreme Court's Quill decision ruled that states can't collect sales taxes from a catalog vendor who does nothing but send catalogs into a state.

The SSTP is an attempt by the states to cope with the Amazon.com economy. Brick-and-mortar sellers like the initiative because it helps reduce the advantage given to internet vendors who don't collect sales taxes. Some large internet vendors, like Wal-Mart, also like it; they have to collect sales taxes everywhere anyway because they have brick and mortar stores, and the "streamlining" helps reduce their tax compliance costs.

Those who note that SSTP reduces states rights to set their own course in deciding what to tax are correct, in one sense. But it's the ability to transact commerce easily across borders, rather than SSTP, that really limits the ability of states to have quirky tax systems. It's not clear that the states loss of flexibility is such a tragedy. If you look at tax systems as strictly revenue systems, rather than as tools of social fairness or economic development, you get to broaden the base, simplify things, and lower rates for everyone.

Link: Taxing Online Sales in Iowa

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