Sales Tax Slice: Will the Prospect of a Federal Remote Vendor Law Spur States to Conform to SSUTA?


If enacted the Marketplace Fairness Act (MFA) would allow those states that are members of the Streamlined Sales and Use Tax Agreement (SSUTA) to require remote sellers to collect their sales tax. Support for the MFA has grown significantly over the years, with a version passing the Senate for the first time in the last congressional session.

The MFA’s prospects for passage could play a role in states’ willingness to conform to SSUTA’s provisions.

In November, the Streamlined Sales and Use Tax Governing Board’s Compliance Review and Interpretations Committee (CRIC) issued its 2014 report on the compliance status of the 24 SSUTA member states. The report determined that four member states previously voted noncompliant by the Governing Board (Georgia, Indiana, Michigan, and Rhode Island) were still noncompliant. The report also noted certain complying practices that other states intended to codify in order to clarify their positions.

Last week, Iowa passed legislation making good on its promise to conform its statutes more closely to the SSUTA. The legislation amends Iowa’s definition of “prepared food” to exclude food ordinarily requiring additional cooking prior to consumption. It also codifies the state’s policy of not holding retailers liable for errors resulting from reliance on the state’s SSUTA taxability matrix. In its report, the CRIC found Iowa to already be in compliance on both of these issues, based on its uncodified practices.

Among the noncompliant states, Rhode Island was initially voted noncompliant in late 2013. At issue is the state’s clothing exemption, which is capped at $250 per article. The SSUTA prohibits this sort of cap and instead requires member states to either fully exempt or fully tax clothing.

The purpose of this and other SSUTA provisions is to reduce the compliance burden on out-of-state sellers should Congress authorize states to require sellers not physically present within them to collect their sales tax. Under Rhode Island’s exemption statute, the cap on its clothing exemption will automatically be removed if Congress does so by passing the MFA. If it does, Rhode Island will have a much greater stake in its SSUTA compliance status.

If the MFA eventually does pass, Georgia, Indiana, and Michigan will have a strong incentive to correct their noncompliance with the SSUTA as well.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Absent congressional enactment of the Marketplace Fairness Act, what incentive do states have to comply with the SSUTA?

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