Intellectual Property Law

Washington State Streamlined Internet Sales Tax of 2008

By IBLS Editor

Washington State Gov. Chris Gregoire has signed into law Senate Bill 5089, the Streamlined Sales and Use Tax Agreement (SSUTA) bill, a measure encouraging Internet and catalog businesses to gather and remit the state sales taxes on purchases by Washington residents. The law is the Washington version of the national SSUTA agreement which is an attempt to cobble together a way to tax the Internet. Said Gregoire said as she signed the bill into law, "This is absolutely about tax fairness to the businesses of the state of Washington." Washington is now one of 21 other states passing legislation to become members of the Streamlined Sales Tax Project.

The Washington State Department of Revenue predicts the State will see an additional $35-- $40 million in tax receipts from out-of-state companies selling products to Washington residents. As it stands, consumers purchasing items from out-of-state Internet or catalog companies are legally compelled to pay sales tax, but usually do not. There are still a few bumps in the plan, as which regime should end up with the tax is at debate. Current law says the jurisdiction sending the product receives the sales tax. But this is no benefit if the product comes from an out-of-state Internet company. The new law dictates the jurisdiction where the product is delivered would get the tax. Te Tax TakesEffect on July 1, 2008.

The tax is voluntary at least for the businesses involved. The tax "streamlines" the definition of businesses for tax purposes in a way the US Supreme Court has not. The streamlining is a euphemism for eliminating the distinction between bricks-and-mortar locales and Internet sites, as well as getting all 50 states signed up.

Some Washington Republicans opposed the measure, claiming consumers would attempt to buy from Internet companies that do not "voluntarily" agree to charge sales tax. Said Rep. Jim Dunn, R-Vancouver, "There is no way this will work unless we can get all the countries of the world to sign on to it."

In 1992, the U.S. Supreme Court ruled states could not force businesses to pay a sales tax unless the company has a physical presence in the state.

More than 1,000 companies selling products in other states have voluntarily signed up to collect and distribute sales taxes to any state that agrees to become a member of the streamlined project. Since the measure does not become law until July 2008, the hope is that businesses and local governments will adjust and help implement the change. Cindi Holmstrom, Director of the Washington Styate Revenue Department, says "We're going to have a really intensive education effort," Holmstrom said. "We're going to hit the ground running now."

While some cities and towns will be benefited, others are hurt, and so the measure includes a mitigation codicil to give jurisdictions losing money payments from the state. The Internet companies that will start charging taxes have not yet been identified. The 1,000 companies volunteering to collect taxes have been awarded amnesty for complying with the new law, as Washington promises not to sue them for back taxes.

What is the Streamlined Sales Tax Project?
The Streanlined Sales Tax Project began in 2000 by national tax and government associations, including the National Conference of State Legislatures and the National Governors Association. Washington joins 21 states passing the legislation to become full members of the project.

The Project states it mission: The Streamlined Sales Tax Project will develop measures to design, test and implement a sales and use tax system that radically simplifies sales and use taxes.

Each state joining the SSUTA must agree to offer a past due taxes amnesty to companies who agree to voluntarily join. This is one of the greatest motivations to voluntarily joining the program. It could be seen as lawsuit-insurance. Plus, it blocks the potential of having to pay a large back-taxes bill.

The SSUTA manifesto states, "Each state must provide an amnesty when they become a member. The amnesty is for uncollected or unpaid sales or use taxes for a seller who registers to pay or collect and remit applicable sales or use taxes on sales made to purchasers in the state."

Full post as published by IBLS Internet Law Blog on May 20, 2008 (boomark / email).