Sales Tax Slice: 7 States Out of Compliance With Streamlined Sales and Use Tax Agreement


The Streamlined Sales and Use Tax Governing Board began in March 2000 as an effort to address the complexity in state sales tax systems after the U.S. Supreme Court ruled (Bellas Hess v. Illinois and Quill Corp. v. North Dakota) that a state may not impose sales tax collection requirements on a seller that lacks a physical presence within the jurisdiction. The result of this work is the Streamlined Sales and Use Tax Agreement, with the purpose of simplifying and modernizing sales and use tax administration in order to substantially reduce the burden of tax compliance.

Today, 24 states have adopted the agreement, but not all of these jurisdictions are in full compliance with the accord. Seven were found out of compliance with the agreement on November 29 by the Compliance Review and Interpretations Committee. The seven states were Georgia, Indiana, Michigan, Nevada, New Jersey, North Carolina, and Wyoming. An eighth state, Minnesota, which the committee had recommended as being out of compliance, won a reprieve when the vote failed to gain the necessary three-quarters majority approval of member states.

The issues raised by the committee for the finding of "out-of-compliance" are as follows:

Georgia - 

 1. The state's sales tax holidays in 2012 and 2013 for school supplies and computers (August) and for energy and water efficient products (October) do not use the definitions in the agreement for such products.

2. The threshold on computers and computer accessories applies per single purchase, not per article purchased.

3. The Educational LOST (local option sales tax) generally applies to energy used in manufacturing, but the other local sales taxes provide an exemption for energy used in manufacturing.

 Indiana -

1. The state has not adopted the new direct mail sourcing and definitions. No distinction is made between sourcing for advertising and promotional direct mail and other direct mail.

2. The statute for the rounding rule does not contain a provision allowing the seller to elect to compute tax on an item or invoice basis. The statute requires the tax to be based on the gross retail income of the transaction.

Michigan -

The new sourcing rules and definitions for "advertising and promotional direct mail" and "other direct mail" have not been adopted.

 Nevada -

Found to remain out-of-compliance with the direct mail sourcing provisions and relief of the seller's obligation to collect tax if it receives a direct pay permit or an Agreement certificate of exemption claiming "direct mail".

New Jersey -

Found to remain out-of-compliance with the Agreement regarding the unavailability of the SER to sellers other than Model 1.

North Carolina -

The state has not adopted the new direct mail sourcing rules. As a result, other direct mail may not be sourced correctly.

Wyoming -

The statute has not been updated to adopt the direct mail sourcing provisions and definitions.

Additionally, Minnesota was found by the Governing Board out-of-compliance in 2011 because the definition of prepared food includes food sold without eating utensils in an unheated state by weight or volume as a single item, but exempts ready-to-eat meat and seafood in an unheated state sold by weight. The committee recommended the state be found out-of-compliance again in 2012, but the recommendation did not receive the necessary three-quarters majority approval of member states.

For additional information about the Streamlined Sales and Use Tax Agreement, see Bloomberg BNA's Portfolio 1270-1st: Sales and Use Taxes: Streamlined Sales Tax System.

By Nancy Emison

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