Sales Tax Slice: New Year’s Resolutions Ripe for Noncompliant Streamlined States

With a new year comes an opportunity for five noncompliant SST states to get with the program.  Georgia, Indiana, Michigan, Rhode Island, and Wisconsin should effect change to bring themselves back into compliance with the Streamlined Sales and Use Tax Agreement (SSUTA).

The Streamlined Sales and Use Tax Agreement (SSUTA) is a co-operative effort among 24 Member States to simplify their tax laws by adhering to uniform definitions and rules.  The idea is that by making state tax laws simpler and more uniform, retailers can operate in more states with fewer compliance burdens.

The Streamlined Sales Tax Governing Board concluded on Dec. 18th that 19 Member States are compliant with the SSUTA, as William H. Carlile explained recently in the Daily Tax Report.  The Governing Board’s announcement follows an internal committee’s November report stating the same.

The compliance check-in is an annual recertification process.  Four states were out of compliance in 2014, and seven states were out of compliance in 2013.

The noncompliant states do not now incur penalties or fines, nor are they expelled as Member States, as Carlile’s story explains.  However, they must now effect changes to bring themselves back into compliance.

The areas of concern vary.  For example, Rhode Island is out of compliance regarding an exemption threshold that it imposes on clothing sold during an annual sales tax holiday.  The SSUTA allows states to fully exempt sales of qualified items priced under a dollar amount, but Rhode Island’s threshold operates differently: it exempts the first $250 of each qualified item even if that item’s price exceeds the threshold.

Thus, if Rhode Island were to amend its sales tax holiday threshold to match the SSUTA rule, then clothing retailers could sell into Rhode Island with fewer hassles.  For example, they would not need to reprogram their cash registers to convert the tax calculation from a full exemption to a threshold exemption.  That might not sound like much of a hassle, but minor variations add up quickly, and in some cases they can cause nightmares for tax professionals.

Advocates and detractors have debated the SSUTA’s merits for over a decade now.  At the heart of the struggle is whether the project has simplified state tax laws enough to justify expanded collection requirements on out-of-state retailers.  With several states out of compliance with the SSUTA, it remains to be seen how well the SSUTA is working.

Continue the discussion on LinkedIn: Is the SSUTA working?

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By Ryan J. Voorhees