DMA Council Regulatory & Legislative Update: Streamlined Sales & Use Tax Agreement
Takeaway notes from DMA webinar. By Aliza Bornstein, copywriter, Melissa Data
Individual states are battling budget deficits.
There are two weapons of disposal right now: SSUTA
(Streamlined Sales & Use Tax Agreement) and NEXUS
(Affiliate Tax). They both address issues
surrounding NEXUS. Nexus is a term used when an
out-of-state company has sufficient contacts with a
given state allowing the state to require the
company to collect and remit sales tax on taxable
The revenue for state taxes is down 17 percent
overall, and state sales tax revenue is down 9
percent. To get a better understanding of what the
states can and can’t do right now—and what’s at
stake—you would need to go back to the US Supreme
court ruling in 1967.
The 1967 ruling held that imposing tax collection
duties on out-of-state sellers would violate U.S.
Commerce Clause protections against undue burdens
that impede interstate commerce. That was reaffirmed
in 1992 with Quill vs North Dakota.
Quill vs North Dakota held that states lack the
authority to force out-of-state firms to collect
sales and use taxes, unless those companies have
physical presence in the state, such as owning
property or employing workers in that state.
Quill vs North Dakota states that the consumers are
responsible for paying applicable local taxes. Quill
also included a provision allowing Congress to pass
federal-use tax laws, even if those laws would, in
effect, overturn Quill.
Affiliate taxes vs SSUTA
Customers can go through an affiliate by visiting an
affiliate’s Web site, and then be directed over to
the brand or the seller, where they would make a
purchase. That brand or seller would then compensate
the affiliate with a percentage based on that
This is typically a state-by-state issue. What the
states are contending is the presence of an
affiliate in a state constitutes NEXUS. The
affiliates also believe this constitutes NEXUS in
the eyes of the states. The tax is then subject to
the location of the affiliate, and applicable to all
sales generated from that state, not just those
sales generated through the affiliate.
The SSUTA agreement is a group of states (an
organization) moving towards their goal of
streamlined taxes; however, they are anything but
streamlined. It is important to note that there are
already 23 full or associate members of the SSUTA.
There are economic pressures pushing states to join
SSUTA. It would require any remote sellers to
collect and remit sales taxes to all states, with or
without NEXUS. This would require congressional
action and the DMA contends this is not yet
streamlined. The SSUTA Governing Board is granting
exceptions to many of the states, thereby increasing
One of the big studies conducted supporting the
SSUTA was the University of Tennessee study. It was
most recently updated in 2009, and it estimates that
the tax revenue losses for all states combined will
exceed $11 billion per year, by 2012. They contend
this is an opportunity lost, as the “untapped tax
bounty is only likely to grow.”
How easy is it to execute the SSUTA if the states
really want it?
It seems pretty simple. You would just charge sales
tax for purchases made over the Internet, just as if
the consumer had walked into a local store. But
right now, it’s not that simple. Which state would
collect the sales tax? The state where the consumer
lives, or the state where the company is located? Or
the city where the call center took the order? How
about the county where the warehouse shipped the
The US has more than 7,600 taxing jurisdictions, and
that’s where the cities and the counties all come
into play, making this very complicated. Each of
those cities and counties have their own rates and
definitions of taxable items. Some states may exempt
food purchases, while cities within the state define
tax-exempt food items very differently.
Many cities are now exempting clothing from sales
taxes, but vary in the types of exempt apparel. For
example, in the state of Connecticut, most clothing
costing less than $50 is exempt. In New Jersey,
clothing and accessories made from fur valued at
$500 or more are subject to sales tax. In the state
of New York, clothing under $110 dollars is exempt
from state tax, yet 51 of 62 counties in NY charge
tax on all clothing.
The SSUTA is still remarkably “un-simplified.” It
does little to reduce the 7,600 different state,
county, and city taxing jurisdictions. In fact, the
SSUTA allows for a different rate for each ZIP Code™
and is filled with ever-changing rule exemptions,
processes, and procedures; all of which are being
used to encourage states to join in on the program.
Small businesses and entrepreneurs will be
disadvantaged by a distant sales tax collection
regime that forces the consumer to comply with
thousands of different rates, laws, filing
instructions, and audit procedures.
How has the DMA been involved in this project?
The DMA has contributed suggestions from the onset,
setting forth in a letter to project leaders in
August 2000 a comprehensive list of reform
proposals. Of more than 30 specific reform proposals
offered by the DMA, the agreement approved by the
states fully adopted only two: centralized
registration; and uniform bad debt provisions.
The big question that we face is: Do catalog
companies and electronic merchants have an unfair
advantage over traditional retail stores, including
“big box” retailers?
The DMA contends it’s not an unfair advantage
because the tax is still owed. When a company has no
physical presence within a state and receives no
benefits from state and local government services,
it is improper for the state to delegate the tax
collection responsibility to the out-of-state
company. Instead, the state must collect any tax due
directly from its residents.
Have state governments overstated the amount of
tax revenue they are losing as a result of current
constitutional restrictions on their taxing power?
The DMA’s view is that states have really
overestimated the amount of tax that they are not
collecting, due to the fact that Congress will not
allow the states to force out-of-state retailers
from collecting tax.
It is the DMA’s view that the University of
Tennessee study is severely flawed.
• It does not sufficiently account for online B-to-B
sales, most of which are either non-taxable sales
for resale or are sales for which a use tax is
generally reported directly to the state by the
There’s an abundance of sales tax that’s collected
that dramatically reduces the amount of “tax revenue
loss” that the states are claiming through the
• It grossly overestimates the total amount of
online B-to-C sales.
• It fails to properly account for the portion of
B-to-C commerce that is not subject to sales tax
(principally sales on non-taxable services).
• It underestimates the level of B-to-C sales in
which sales tax is collected (such as online travel
• It does not take into account the increase in tax
collection by Internet sellers that also have
Why did the states abandon their effort to achieve
“high bar” reform of their tax systems?
Politically, there are reasons within a state to
have different tax rates for different
jurisdictions, and it’s set up in the political
organization of several states. This makes it
increasingly difficult to create some type of
streamline sales tax regime across the country that
would make it easier for those states to try and
convince Congress that they should allow the states
(those who joined the SSTUA) to require out-of-state
sellers to collect taxes.
• Unfortunately, the high ideals of SSTP organizers
were eroded by the political realties of having to
gain the endorsement of state legislatures,
municipal officials, and political constituencies.
Taxation without borders results in cost,
complexity, confusion, and conflicts. States could
favor taxation over federalism by pressing Congress
to adopt a single, uniform national sales tax, and
distribute the proceeds among the states.
• The SSTP repeatedly retreated from original
proposals for dramatic tax reform and consistently
rejected or diluted provisions that would have
produced substantial uniformity among the states.
• The result is a “low-bar” agreement that contains
only minor, and in many instances, cosmetic tax
• Rather than a truly uniform system, the SSUTA
perpetuates, and in many respects, aggravates a
taxation system of tremendous complexity.
There has never been a time when it has been more
important for Congress and the Supreme Court to
support the original intent of the Commerce Clause,
which was to create one national marketplace in
which goods and services move freely.
To stay informed on this issue and learn more about
DMA Councils please visit
---Source: Direct Marketing
Association webinar on Nov. 10, 2009 (www.the-dma.org).
Jerry Cerasale is senior VP of Government Affairs (firstname.lastname@example.org).
Neil O’Keefe is VP of Multichannel Segments (email@example.com).
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