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What to expect from sales tax reform
Over the last 15 years e-commerce has become an increasingly important part of the US economy, accounting for 6% of total retail sales in the first quarter of 2014. Taxand USA takes a look at the new sales tax reform and its likely affect on the industry.
Historically businesses have had a sales tax collection and reporting requirement if they had a physical presence in the state. However, with the development of technology many businesses have been marketing their products electronically across many states without having any physical presence in any of them. As a result, states that impose a sales tax have missed out on large amounts of tax from these remote sales that would otherwise have been collected if they had been made at a traditional brick-and-mortar store.
In the evolution of e-commerce, several states organised the Streamlined Sales Tax Project (SSTP). The SSTP was essentially formed to simplify multistate sales tax collection systems and build support for federal legislation that would eventually allow states to require out-of-state vendors to collect sales tax. Today, 24 member and associate member states form the SSTP. Although several of the most populous states (e.g., California, Florida, New York, Illinois, Pennsylvania and Texas) have not adopted the SSTP, it has made a fair amount of progress in simplifying sales tax collection systems among its member states. This in turn has paved the way for possible federal legislation that would allow eligible states to require remote sellers to collect the elusive sales tax on sales to customers in those states.
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While Congress considers a federal solution to the sales tax treatment of remote sellers, states will inevitably get more creative and aggressive with them. Companies should continue to monitor both federal and state legislation and consult their tax advisor during this dynamic period to ensure that sales tax filing obligations are met.