Marketsmith, Inc. - Article From Newsletter

As of this writing, there have been no new developments on the New York State tax law which went into effect June 1, 2008, requiring internet vendors who receive more than $10,000 in compensation for goods or services from New York residents to collect and pay sales tax to the State of New York.

It is worthwhile to point out that this issue is not unique to New York. There are bills (Streamlined Sales Tax acts) in both the U.S. House (H.R. 3396) and the Senate (S. 34) which address requiring vendors to pay sales tax in the state(s) where they have sold goods and services. The goal of these bills is to create a simplified and equitable collection process to which all States can agree. And the reach goes way beyond direct marketers; the goal is to streamline the way States collect and use sales taxes, but the ramifications will be felt by multichannel marketers.

As with the NY law, these bills change the underpinnings of the process, shifting the determining factor of sales tax collection to the location where the product or service ends up (as opposed to where it started). In 1992 the Supreme Court ruled only those transactions which occurred in the same location as that where the vendor maintains a presence are subject to local taxes. With the pending legislation, irrespective of where the vendor maintains a presence, taxes will be due in the location where the goods or services were provided.

If the federal legislation passes, only 10 States that have sales tax and that represent at least 20% of the population need to join a compact for those States to begin to be able to require companies with more than $5 million in annual gross sales to collect and remit taxes on sales in remote locations (that is, on mail/phone and internet orders), according to newrules.org.

The National Association of State Legislatures and Board of Governors have set up a joint program - the Streamlined Sales Tax Governing Board which meets quarterly and is attempting to work out the details of a simplified process (www.streamlinedsalestax.org). To date 43 states have agreed in principle to the process and 22 have passed State legislation, but there is no overarching consensus on all of the pieces of the process. The process has been going on for many years and it could take many more years for results to be worked out. However, if the New York legislation is not overturned in Court, there may be an additional impetus to States to work out the bugs and work together in demanding taxes on all goods and services sold in their locales.