Streamlined sales tax effort stalls, for now

Editor’s Note: This story first appeared in the most recent issue of County Lines, a publication serving county government leaders. Talk Business editor Roby Brock is the author of the article. Talk Business is a content parter with The City Wire.

Despite promising potential, efforts to implement a national streamlined sales tax initiative have dragged due to the economy, political conditions, and internal riffs in the retail arena.

Three years ago, passage of a streamlined sales tax (SST) system was imminent. Today, no one holds much hope for a quick resolution even though there is a bill pending before the current Congress.

"We don’t really think that it has a good chance of passing anytime soon," said Tim Leathers, deputy director of the Arkansas Department of Finance and Administration.

The Streamlined Sales Tax Project started earlier this decade as a national guideline group worked to make more uniform state and federal laws for the collection of sales and use taxes from purchases made across state lines. Specifically, members of the group aimed to collect those taxes from "remote" sources, such as items bought over the Internet and from mail orders, phone orders and catalog sales.

Supporters argued that Main Street businesses have to collect and remit the taxes, but "remote" sources did not, which gave them an inherent business advantage over bricks-and-mortar competitors while costing state and local governments billions of dollars in lost revenues.

A Congressional estimate of the amount of lost sales tax revenue created by this inequity is staggering. According to Congressional research, approximately $18.6 billion in sales and use taxes from "remote" sources will go uncollected by U.S. states in 2011.  By 2012, states will be losing at least $23 billion annually.

For the three-year period of 2009-2012, estimates are that states will miss out on nearly $55 billion in lost sales tax revenue.

Arkansas passed state laws in 2007 to gain compliance with the SST Project in anticipation of federal guidelines, but Congress never made its move.

In late 2007, all odds pointed to passage of a proposal sponsored by Sen. Mike Enzi (R-Wyoming). His bill stalled as other priorities dominated the agenda. Lawmakers then became distracted by the downturn in the economy, which ultimately led to the worst recession since the Great Depression.

This year, Cong. William Delahunt (D-Mass.) has introduced a reincarnation of Enzi’s bill.  The "Main Street Fairness Act" would set up the federal guidelines for states to participate in a voluntary SST agreement.

"We are facing unprecedented economic times and difficult choices. State officials are now coming to the Congress looking for billions for their schools, teachers and other vital public programs. However, our first priority ought to be to help states collect the billions in tax revenues that are already owed, but are being lost," said Delahunt when he filed the bill in July.

"Instead of raising new sales taxes — let’s collect these tax dollars first," he added.

A number of organizations have signaled their support for the legislation, including the National Association of Counties, National Retail Federation, International Council of Shopping Centers, National Governors Association, U.S. Conference of Mayors, the National Conference of State Legislatures, and National League of Cities.

The Computer and Communications Industry Association, which represents companies like eBay, Yahoo!, Google and Microsoft, contends it would be an e-commerce killer.

But Delahunt announced he would retire this year, and with time running out on his term, chances of the measure passing are slim.

DF&A Deputy Director Leathers shares Delahunt’s philosophy that with the struggling economy, it’s a good time for legislators to seek the lost sales and use tax revenues that the SST initiative would enact.

"But with the perception that this would be a tax increase, the political will is really not there," Leathers noted.

He also points out that an agreement with major retailers — which are being squeezed by online competitors not remitting local and state tax collections — fell victim to internal back-biting.

During the past three years, some of those major retail outlets decided they wanted to keep a small percentage of the SST taxes they were collecting — a move that caused dissent and lack of unity among merchant groups.

Still, Leathers thinks the day will come when SST finds its footing.  As technology advances make it easier to track and collect sales and use taxes, the ability to enact SST improves.

He also says that technological improvements have led bigger retail operators to voluntarily comply with SST standards and guidelines.

Leathers said that Arkansas has had voluntary participants since it entered the SST network in 2008.  Currently, sales and use taxes collected through SST add "about $8 million a year" to the state’s coffers.

"It has more than paid for the effort," Leathers said.