Nexus and the 'net - Tax - states urge Congress to pass Internet sales tax

Should businesses have to collect sales taxes for states in which they have no physical presence? Riding the coattails of interest surrounding the soon-to-expire Internet Tax Non-discrimination Act, a growing number of cash-strapped states are pushing to get Congress to say yes.

While the act primarily addresses taxes on Internet access charges--not sales--the bill has become a catalyst for the long-running debate about how and when companies must collect state and local taxes. "It's not just going to be about extending the legislation," which is set to expire November 1, says Jeff Friedman, tax partner with KPMG LLR "We expect to see bills and amendments introduced to expand the protections for E-commerce, and possibly to redefine nexus," potentially making a company's physical location irrelevant to its tax obligations.
Currently, most companies do not have to collect sales tax for states in which they do not have a presence, thanks to a 1992 U.S. Supreme Court decision that said managing the myriad and ever-changing rules on all state and local taxes would be too burdensome.

In an effort to get that decision overturned, however, this spring 13 states passed laws to adopt the agreement drawn up by the Streamlined Sales Tax Project (SSTP), which aims to standardize definitions of taxable goods across states and limit each state to two sales-tax rates, thereby defusing the burden argument. According to Neal Osten, a director for the National Conference of State Legislatures, project backers are hoping to get a bill before Congress by next fall seeking authority for states to require all out-of of-state sellers, including Web-based ones, to collect sales tax.
"Businesses would benefit from the simplification," says Douglas Lindholm, president and executive director of the Council on State Taxation, which represents 550 multistate corporations on tax issues. However, he says, the reform should include congressional action to stop states from using the same logic to pad their income-tax bills. "If you set physical presence aside as a standard for sales-tax purposes," says Lindholm, "the big unanswered question is, what is the nexus standard for business-activity taxes?"

RELATED ARTICLE: GETTING TOGETHER: States adopting the SSTP agreement.

1. Arkansas

2. Indiana

3. Kansas

4. Kentucky

5. Minnesota

6. Nebraska

8. Oklahoma

9. South Dakota

10. Utah

11. Washington

12. West Virginia

13. Wyoming