Industry Insights

The importance of Streamlined Sales Tax in the post-Wayfair world

AVALARA streamlined sales tax

Now that states can and are taxing remote sales, it’s more important than ever for businesses in any industry to understand how registering through the Streamlined Sales Tax can save time and money.

Streamlined Sales Tax (SST) was developed in 2000 in response to two Supreme Court of the United States decisions, National Bellas Hess v. Illinois (1967) and Quill Corp. v. North Dakota (1992). In both, the court found state sales tax laws to be too complex to impose on out-of-state businesses, and remote sales tax compliance to be too burdensome and costly. Consequently, states were restricted to taxing sales by businesses with a physical presence in the state.

Not long after the Quill ruling, the birth of ecommerce dramatically changed the world of retail and forced states to rethink their sales and use tax systems. Officials from 44 states set out to simplify sales tax administration and reduce the costs of compliance for remote businesses. The result of their work is the Streamlined Sales and Use Tax Agreement. Participating states hoped the simplification and cost-saving measures would encourage voluntary compliance.

There are currently 24 SST member states: Arkansas, Georgia, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, Nevada, New Jersey, North Carolina, North Dakota, Ohio, Oklahoma, Rhode Island, South Dakota, Utah, Tennessee (an associate member), Vermont, Washington, West Virginia, Wisconsin, and Wyoming. All have instituted the following simplification measures:

  • A central, electronic registration system
  • Consumer privacy protection
  • Simplified administration of exemptions
  • Simplified state and local tax rates
  • Simplified tax remittances and returns
  • State administration of sales and use tax collections (no self-collecting local jurisdictions)
  • Uniform state and local tax bases
  • Uniform sourcing rules for all taxable transactions
  • Uniform tax base definitions and rules

Businesses that register through the SST Registration System in any or all those states benefit from simplified registration and uniform rules. Additionally, they can take advantage of the SST Certified Service Provider (CSP) program. SST states encourage remote sellers to outsource most sales tax administration responsibilities to a CSP, like Avalara.

For businesses that qualify as a “volunteer seller” in one or more SST states, the state compensates the CSP for providing certain services. Thus, there can be substantial savings for volunteer sellers that use CSPs.

To qualify as a volunteer seller in an SST state, a business must meet all the following criteria in the 12-month period immediately prior to registering in the state:

  • Have no fixed place of business for more than 30 days in the state
  • Have less than $50,000 of property and payroll in the state
  • Have less than 25 percent of total property or payroll in the state
  • Other

SST’s simplification measures have never been more relevant or necessary than they are today. On June 21, 2018, the Supreme Court of the United States issued another ruling on remote sales tax: This time, it overruled the physical presence rule. As a result, states can now base a sales tax collection obligation on a remote seller’s economic and virtual contacts with a state, or economic nexus.

In the year since the ruling, 43 states and the District of Columbia adopted economic nexus laws requiring remote sellers to collect and remit sales tax, and it’s only a matter of time before the remaining states with a general sales tax (Florida, and Missouri) follow suit. These new remote sales tax collection obligations can affect companies of any size in all industries, even those dealing primarily in exempt transactions.

Learn more about no-cost sales tax calculations, returns preparation and filing, and increased audit protection in SST states with Kerridge Commercial Systems and Avalara.

Categories: E-Commerce