States endorse Internet sales tax reforms

Thirty-two states have approved a model agreement to streamline the nation's sales tax system, the National Governors Association announced Nov. 12.

The agreement now goes to each state, which must enact legislation to bring its state and local sales tax into conformity.

The agreement, which would become operable as soon as 10 states enact legislation, would establish uniform definitions for taxable goods and would require participating states and local governments to have only one statewide tax rate for each type of product effective 2006.

If successful, the effort would be the first overhaul of the nation's sales tax policy in 40 years, and the first time states had acted together to significantly restructure the system, the association said.

One of the problems with so many taxing jurisdictions is that they often have different laws or definitions of what is taxable. This makes it difficult for remote sellers, such as mail-order and e-commerce companies, to calculate, collect and remit sales taxes at varying rates to different state and local governments.

The agreement would save businesses millions of dollars in efficiencies by removing the burden of complying with existing laws, rules and regulations in thousands of jurisdictions, the association said.

It also would create a level playing field between "remote" sellers and "Main Street" sellers. The former are not obligated to collect and remit sales taxes, while the latter must collect sales taxes.

The nation's sales and use tax system comprises 7,500 state and local taxing jurisdictions throughout the country. Lawmakers and state tax officials believe that this system is antiquated, complex and cumbersome.