RSM Resources

When a national Streamlined Sales and Use TaxAgreement (SSUTA) goes into effect on October 1, it will signal the beginningof sweeping changes in how midsized companies can collect taxes on remote salesand start the clock ticking on new amnesty options for unpaid sales and usetaxes.

Experts say this launch date, on which a governingboard representing 18 states will be seated, is proof that this major reformof the sales-tax system is on course.

"This is real now," says Kristi Magill,national managing director for RSM McGladrey’s state and local tax practice."Several states have already made significant changes to their laws and,with a governing board coming into place, there’s likely to be more momentumand more pressure to adopt SSUTA principles."

For companies that collect sales and use taxes, amajor reason to circle the October 1 date is the agreement’s sales-and-usetax amnesty program, under which companies with unpaid taxes have a limitedtime to gain relief in exchange for registering with the SSUTA. In addition, tohelp businesses comply with the new tax system, member states are working withIT providers to make certified software tools available as soon as possible.

Over time, experts believe the SSUTA will affectincreasing numbers of companies conducting "remote sales," which mayinclude goods or services sold via direct mail or the Internet. Projectsupporters want companies to collect sales tax on such sales — regardless ofwhether a business has a physical presence (or nexus) in the state wherethe product or service was delivered or consumed. One federal source estimatesthat for the years 2001 through 2011, taxes on remote sales would add anadditional $440 billion to state tax collections.

Two-tiered membership
Earlier this year, the SSUTA’s governingsetup was expanded to allow states to participate as either "full" or"associate" members. That shift, Magill said, was a nod to toughfights occurring in some state legislatures over the agreement’s morecontroversial features — such as the move to collect taxes based upon where anitem is delivered, rather than where the item originated. It also allowed thestates to achieve a critical population test required to activate the SSUTAthat may have been out of reach this year without the addition of a more lax"associate" member provision.

Associate-member states, which have limited votingrights, are those still making progress toward full SSUTA conformity. Inexchange for accepting an associate member provision, business interests wonconcessions in how telecommunications, bundled transactions, and other key subjectsare defined and treated under the agreement.

The 18 states approved for membership under thetwo-tiered system are Arkansas, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, New Jersey, North Carolina, North Dakota,Ohio, Oklahoma,South Dakota, Tennessee,Utah, West Virginiaand Wyoming.

With the governing board in place this fall,participating states hope to make progress in several key areas. These includecertifying software providers and creating a central database offering companies"one-stop" registration within all member states, according toStephen P.B. Kranz, tax counsel with the Council on State Taxation, aWashington, D.C.-based trade association.

Progress in these areas, experts say, should helpassociate members become full members and encourage other states to moveforward with their compliance efforts.

Many businesses, meanwhile, will be looking forthe tools and resources they need to comply with the provisions of theagreement, which until now have been lacking. Small and midsized businesses inparticular have struggled to adopt SSUTA principles such as destination-basedsourcing without the board-approved, certified tools to do so.

Tax amnesties
The SSUTA tax amnesty program is availablefor a limited period of time once a state joins in the agreement. So if you’reconsidering taking advantage of this offer, now is the time to take a closelook at the fine print, consider other tax-amnesty alternatives and determinethe best approach for your business.

Under the SSUTA program, companies can resolveunpaid tax liabilities and avoid back taxes, while receiving amnesty from anynew states joining the SSUTA at a later date. In return, participatingcompanies pledge to begin collecting taxes in each member state where they makesales, including those states where they have no physical presence.

For associate-member states, the process works alittle differently. The amnesty offer will extend 12 months beyond the datethat the state becomes a full member. So, if a state upgrades from associate tofull-member status in February 2006, the amnesty offer will run throughFebruary 2007. Additionally, while remote sellers may voluntarily collect taxin associate-member states, they’re not required to do so.

Business owners should keep in mind, however, thatthe SSUTA amnesty offer does have several key limitations, Magill says,including the fact that it covers sales and use tax only and not other taxliabilities such as income tax. Before deciding to participate, you should balancethe risks and rewards against other amnesty programs, such as state taxamnesties and voluntary disclosures.

Next steps
So far, the availability ofSSUTA-compliant technology hasn’t caught up with the new requirements companiesare being asked to meet. While participating states have committed to providingcertified (and subsidized) software, those tools are still in development — andquestions remain about the level of financial support companies can expect toreceive for upgrading their systems.

"The states have said certified tools will befree or at a reduced cost," Magill said. "But what about thesecondary costs that companies incur, like implementation, testing and training?"

Another question mark is how successful theremaining states that are not yet members of the SSUTA will be in bringingtheir laws into compliance in the upcoming years. Magill thinks many will bespurred on to act more aggressively now that there’s a governing body in placeto drive the reform process.

"They’ll be concerned about being left out ofthe process and missing out on the potential tax benefits," she said.