By Catherine Hubbard, CCH Washington Staff Writer

The current sales tax system places an enormous burden on businesses, according to Maureen Riehl, vice president of the National Retail Federation. "The current system is patently unfair," she said, addressing a Washington Area State Relations Group sales tax simplification forum in Washington on March 12, 2003.

Riehl said retailers are required to collect and remit sales taxes anywhere in the 7,600 sales tax jurisdictions in which they have a physical presence. It is extremely costly for retailers to collect and remit the taxes, yet only 18 states compensate businesses for the effort, she said. "Some states aren't willing to pay for us to do that." The highest rate of compensation is in Illinois, where retailers may keep 1.75 percent of the sales tax collected, she said. However, the compensation currently "is under fire," as the state grapples with budget deficits, she added.

Riehl said the Streamlined Sales and Use Tax Agreement could help retailers, by reducing the number of sales tax jurisdictions and by preventing states from sending sales tax audit delegations to store headquarters for unscheduled visits. She noted that Sears faces an average of two such audits each week and Target has an average of three per day. Both retailers have hired additional staff to handle the audits.

The agreement would create a nationwide uniform sales tax system, create uniform definitions of taxable items and would put in place a group of certified service providers to provide tax functions for businesses and minimize audits. It also would lead to greater use of technology to reduce administrative burdens, according to an outline. States also promise one-stop registration, state administration of local sales taxes and one return per state and per seller.

Michael Greve, a scholar with the American Enterprise Institute, said he opposes streamlining efforts and instead advocated an origin-based sales tax. Riehl said an origin-based system would cause harm to retailers, noting that the sales tax is a tax on the consumer; not a tax on business. "Origin-based doesn't work because this is a consumer tax."

Stephen Kranz, tax counsel for the Council on State Taxation, said the agreement would help by reducing audit exposure for retailers and providing one-stop registration for all jurisdictions. Nevertheless, the council is concerned that digital property is not yet defined for sales tax purposes. The definition could become "overly broad and encompass a huge tax base that's not already taxed," he said. The council also is concerned about bundled transactions, he added.

Kranz questioned whether the states will "really live up to the standards" set out by the agreement. Perhaps states will act on all the provisions, but will not be able to eliminate audits by Louisiana parishes, which retailers find especially troublesome, he said. States will find it "difficult to achieve the bar they have set," he said.

Another concern is that states could simplify sales taxes, but enact excise taxes as a replacement revenue source, said Kranz. "If you clean up the sales tax [and enact] a whole new set of excise taxes, you've accomplished nothing," he warned.

Dennis Brown, vice president with the Equipment Leasing Association, Arlington, Va., notes that each state that participates must be in substantial compliance. That means that even if the requisite 10 states join the effort, including 20 percent of the national population, the states must comply with each provision, he told CCH after the forum. State legislatures must be in substantial compliance with each provision or they will not be accepted in the 20 percent threshold to create a governing board, he elaborated.

Brown added that the streamlined process "is a collaborative effort between state governments and the private sector," that would "do away with many of the burdens that we now face." He also predicted that there will be enough states complying with the effort this year to meet both thresholds.

In written comments, Brown said that delegates from 35 states to the Streamlined Sales Tax Implementing States have approved the agreement. Once enough states enact complying legislation, supporters will seek congressional legislation overturning the Supreme Court's Quill and Bellas Hess decisions that prevent states from requiring collection of sales tax by remote sellers. Congressional approval also would make the voluntary agreement into a mandatory system that includes remote Internet and catalog sellers, he noted.

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