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The County Line
- Convention Issue 2005
Streamline Sales Tax makes progress...slowly
Though it happened without much attention, the national effort to collect sales tax on purchases made from "internet" retailers has moved a little closer to its final goal.
Now, don't run out and float a bond issue based on the projected revenue - things haven't moved that far along. But at least there is some forward motion on this important project, which is misunderstood here in Alabama and around the country.
The Streamline Sales Tax Project is a "voluntary" method for internet-based companies to remit sales taxes on deliveries made into states participating in the project. This effort is not designed to "require" the internet retailers to remit taxes to the participating state. And, unless authorized by separate federal legislation, this project will not authorize governments to conduct audits or to compel companies to remit taxes the company is unwilling to collect. Once operational, the project will not ensure that each state receives sales taxes from internet companies. It will only make it easier for companies to voluntarily make such payments.
Those who worked to establish the project believed that the retailers' resistance in collecting and remitting sales taxes could be removed if all participating states adopted identical definitions, procedures and policies and if each state provided only one tax collection point and method. If such barriers are removed, supporters believe, the appropriate revenue will be paid to the individual states. And, even today, it is that assumption that drives the supporters of this project.
It is also hoped that once the project is operational, once internet-based companies are voluntarily collecting taxes and remitting those taxes to the states, that it will be much easier to convince the U.S. Congress to change federal law to "require" internet retailers to collect and remit the tax. Such a requirement would allow for audits and enforcement against the internet companies.
For the last three years, I've served as one of Alabama's delegates to the Streamline Sales Tax Implementing States Board of Directors. Most of the work of the board has focused on painful details and heavy politics involving the largest retailers on the globe. Over time, we've wondered if the effort would be able to make any forward motion under the weight of complexity that surrounds the collection of sales and use tax revenue around the nation.
But more than a dozen states have now adopted the legislation required to move the project forward and a new board has been created to oversee the activities necessary to put into operation a mechanism for retailers to collect sales taxes and then remit those taxes to the participating states. Alabama, which has not yet adopted the necessary legislation, does not have a seat on this new board.
But we will still have input into the future of this project. A new advisory board, called the State and Local Government Advisory Committee, has been established and includes a representative from Alabama as well as 12 representatives of local government around the country. The National Association of Counties used one of its appointments to place me on this advisory committee. So Alabama will continue to influence activities in this important arena.
Such influence is necessary if Alabama, and a number of other states that have similar issues, are to rewrite their sales tax statutes in order to be a part of this project. Many of these requirements would be rather easy to adopt in Alabama. In fact, some of the provisions of the agreement are consistent with existing Alabama law. However, Alabama must overcome at least five major problems before it can apply for - and be granted - status as a "conforming" member of the project.
A central issue is the requirement that each state have only one "collection" point for its sales and use taxes. Because local governments in Alabama can levy - and, therefore, collect - their own taxes, there is considerable opposition to repealing the local collection authority. Local governments point to increased revenue through local collection and enforcement, which would be given back if forced to participate in a centralized collection system.
In addition to concerns about the "collection" of the taxes at a central point, local officials in Alabama are unified in their belief that local "enforcement" efforts are essential to maintain the local revenue stream. If Alabama shifts to a centralized collection and enforcement process, local officials fear that the "voluntary" sales tax payments made by internet retailers will not even replace the revenue lost by eliminating the productive efforts of local sales tax enforcement.
The Streamline agreement would also require Alabama to standardize its sales and use tax "rate and base", making it difficult to continue the existing special rates for farm and industrial machinery, for example. Similarly, the agreement requires that only one tax "rate" be paid to each governmental "jurisdiction". This requirement is troublesome in Alabama because of the separate sales tax levies for school districts that do not run consistently with the jurisdiction lines of the county or municipal government. Adjusting the tax rates to conform to city or county lines would have a negative impact on many school systems in Alabama.
Additionally, Alabama must have in place a system (based primarily upon the 9-digit zip code) that will provide internet retailers with the exact location of each address in the state. This requirement is designed to ensure that the internet retailers can immediately know what taxes to collect from each seller based upon the sellers address. Such a system does not now exist in Alabama, and must be created before Alabama could participate.
Obviously, these issues will be difficult to overcome in Alabama. And the real motivation to make these changes will only come when Congress "mandates" the collection of sales taxes by these internet sellers. That kind of action by Congress is not expected to come anytime soon.
But, in the meantime, it is important that Alabama keep a close watch on this project as it continues to make steps forward toward an ultimate goal that is shared by everyone in government in Alabama.
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