It's not uncommon to read stories about companies that stretch the rules to avoid paying taxes. But currently there's a tax that many companies are already paying, though at present they have no legal obligation to do so.The Streamlined Sales Tax Program, the tax designed to recoup perceived lost state tax revenues due to online and other out-of-state sales, is chugging along, even though federal legislation to institute it on a permanent basis appears to be standing still.
As of Jan. 1, 2007, 21 states will be officially participating. The program, which was roughly five years in the making, was to formulate an interstate agreement for a simplified sales and use collection system that could be used by retailers regardless of location.
All states eventually are expected to enact legislation that will enable them to participate, although Texas and California are dragging their feet, and Colorado has indicated that it does not want to participate.
Over 1,000 companies had registered by Sept. 30, 2006, the original closing date for an attractive amnesty program. Companies that signed on are entitled to amnesty from all penalties and interest, as well as all past sales and use taxes both uncollected and unpaid for items shipped or delivered to buyers in member states.
"The amnesty program was the best that you were ever going to get," said Kristine Magill, national managing director for state and local taxes for RSM McGladrey Inc. and co-chairman of the Iowa Streamlined Sales Tax Advisory Council. "I don't recall there ever being a state-sponsored amnesty program where they forgave all taxes, all penalty, all interest, regardless of the degree of nexus."
Magill indicated that some companies might be taking a wait-and-see attitude toward the SSTP, since the program is still a voluntary one. And although the amnesty might be alluring, Magill has warned clients that they should consider their entire tax picture before making the decision to take advantage of the SSTP amnesty.
"It only provided amnesty for sales taxes," she said, "so if that same entity had other tax issues in the state with income taxes or franchise taxes, you had to makes sure that they didn't go forward with Streamlined amnesty without taking into account all of their other tax issues they may have with a particular state."
Companies that are still on the fence now have an added incentive to consider signing on for the SSTP: The amnesty program has been extended for an additional eight months.
"We're giving additional time for those that are using the technology within the SSTP, the certified service providers and certified automated systems, because we didn't get them in place as quickly as we wanted to," said Diane L. Hardt, tax administrator with the Wisconsin Department of Revenue and chair of the state and local advisory council of the governing board of the SSTP. The new amnesty deadline is the end of May 2007 for all participating states except Michigan and North Carolina.
Three service providers have been certified by the SSTP: Avalara, Exactor and Taxware. All three enable clients to automate the process of collecting, accounting for and paying sales taxes in all of the roughly 8,000 state and local taxing jurisdictions in the U.S. In addition, Taxware also offers an SSTP-certified automated system for companies that want to acquire the software and process their sales taxes in-house.
The SSTP-certified companies are starting to see some growth in this new area of their business. "It's a growing wave," said Rory Rawlings, Avalara's founder and chief tax automation officer. "We started out with one customer that we went live with in June. We wanted to take that slow. Now we've got 14 companies that are live on Streamlined. We've got a queue of 60 companies that we're working with directly and we're bringing those customers live. I anticipate that number tripling before the end of the year."
Charles Collins, vice president of government affairs for Taxware and former co-chair of the SSTP, has also noticed a surge in sign-ups. "There has been a great increase in the number of calls from people that are interested, especially with respect to the month of September, when the initial amnesty period was set to expire."
But not every SSTP company is signing up for the software. "What was a bit interesting was that of those that registered, the majority of them chose to basically handle sales and use tax themselves, versus using one of the certified service providers," said Magill. "My interpretation of that is that a lot of businesses used the registration system and the amnesty to take care of prior problems and not necessarily because they were the type of company that Streamlined was targeting, being the mail-order-type companies or the Internet-based sellers."
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