How Streamlined Sales Tax Can Simplify Remote Sales Tax Compliance
More than 40 states now or soon will require certain out-of-state sellers to collect and remit sales tax. If you’re affected by any of these new requirements, you’re probably discovering just how challenging — and costly — remote sales tax compliance can be.
Registering through Streamlined Sales Tax and outsourcing sales tax collection and remittance to a Certified Service Provider can greatly simplify sales tax management and reduce its cost. You may even be able to obtain some CSP services for free. Read on to discover how the Streamlined Sales Tax came to be and how it can benefit your business.
Origin of Streamlined Sales Tax
The Streamlined Sales and Use Tax Agreement grew out of state efforts to tax remote sales, the complexity of sales tax compliance, and the emergence of ecommerce.
In 1967, the Supreme Court of the United States ruled that a state could only impose a sales tax collection obligation on businesses with a physical presence in the state: Sales tax laws were simply too complicated to foist on out-of-state sellers. That decision was upheld in 1992, shortly before the internet changed retail forever.
Faced with swelling sales by out-of-state internet sellers who couldn’t be compelled to collect sales tax, states joined forces “to simplify and modernize sales and use tax administration in order to substantially reduce the burden of tax compliance.” The result of their efforts is the Streamlined Sales and Use Tax Agreement, or SST.
More than 40 states were involved in the creation of SST, and 24 are members at this time: Arkansas, Georgia, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, Nevada, New Jersey, North Carolina, North Dakota, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee (an associate member), Utah, Vermont, Washington, West Virginia, Wisconsin, and Wyoming.
Nonetheless, all states still lacked the authority to tax remote sales — until one SST state challenged the physical presence rule and won.
The end of the physical presence limitation
In 2016, South Dakota enacted a law requiring businesses with significant economic activity but no physical presence in the state to collect and remit sales tax. The ensuing lawsuit (South Dakota v. Wayfair, Inc.) made it all the way to the U.S. Supreme Court, which ruled in favor of the state on June 21, 2018. States now have the authority to enforce economic nexus as well as physical presence nexus.
The court noted South Dakota’s membership in SST, saying it indicated the state was working to “prevent discrimination against or undue burdens upon interstate commerce.”
All SST states except Kansas have adopted economic nexus since the Wayfair decision, and Kansas is expected to follow suit soon. Once it does, Florida and Missouri will be the only two states that have a general sales tax and don’t tax remote sales.
Thus, SST’s simplification measures have never been more relevant — and necessary — than they are now.
Simplifying sales tax compliance
To simplify sales tax collection and remittance and reduce the associated costs, SST member states are required to have the following:
- A central, electronic registration system
- Consumer privacy protection
- Simplified administration of exemptions
- Simplified state and local tax rates
- Simplified tax remittances and returns
- State administration of sales and use tax collections (no self-collecting local jurisdictions)
- Uniform state and local tax bases
- Uniform sourcing rules for all taxable transactions
- Uniform tax base definitions and rules
Any business that registers through the SST receives the standard benefits listed above in any or all 24 member states.
Perks for volunteer sellers
There are added perks for volunteer sellers in participating states: no SST registration fees; no calculation fees; no monthly filing fees; and audit protection.
To qualify as a volunteer seller in a member state and obtain CSP (Certified Service Provider) services at no cost, businesses must meet all the following criteria during the 12-month period immediately preceding the date of registration with the member state:
- Have no fixed place of business for more than 30 days in the state
- Have less than $50,000 of property in the member state
- Have less than $50,000 of payroll in the state
- Have less than 25 percent of total property or payroll in the state
- Additional criteria
Wondering if your business can take advantage of no-cost sales tax calculations, returns preparation, and filing in participating states with SST? Learn more.
Gail Cole began researching and writing about sales tax for Avalara in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts and endeavors to make complex sales tax laws more digestible for experts and laypeople alike.