With an estimated half-billion dollars in sales tax not making it to Connecticut coffers, it was only a matter of time before legislators did something about online sales.
Online sellers hold an advantage over their brick and mortar counterparts because, without a physical presence in the state, they are not required to charge sales tax.
Understandably, those retailers have wanted that changed in an attempt to level the playing field.
Initially spurred by the need to create a uniform method for Internet and multi-state retailers to collect sales tax on out-of-state transactions, the National Governors Association’s Streamlined Sales Tax Project (SSTP) has taken on new urgency in light of the fiscal difficulties currently faced by many states. “States need to protect their revenue sources in order to protect their sovereignty. This is not just an Internet sales tax. This is a very significant initiative that addresses both the inter-state and global nature of commerce” said R. Bruce Johnson, a Utah State Tax commissioner and national co-chair of the Streamlined Sales Tax Implementing States.
“Simplification is the right thing to do, because we have created a tremendous burden for multi-state retailers,” he said.
Connecticut Mulls Idea
Connecticut may be on the verge of adding its name to the list as the past legislative session ended with a section of the Office of Policy Management implementing a bill that included a study committee to examine how the state can join the project.
“Our concern was that the retailers in the state would have been at a disadvantage if we acted before other states or Congress acted,” said Timothy Phelan, president of the Connecticut Retail Merchants Association. “We would have been in a very difficult situation so we are grateful for the decision to form a committee.”
The ultimate goal of the project is to have all 50 states agree on similar sales taxes for different items, which would in turn convince Congress to force remote sellers, whether by the Internet or traditional catalogs, to collect sales tax.
Multi-state efforts to streamline the current system began with a 1992 U.S. Supreme Court decision that forbids states from forcing retailers to collect sales taxes unless the seller has a physical presence in the state where the purchase is made. The Court ruled that the complexity of collecting taxes across thousands of jurisdictions presents too large a burden for online retailers, but left the door open for states to seek mandatory collection of online sales taxes if they first simplify the existing sales tax structure.
Lost Exemptions
To join the project would mean serious political decisions for Connecticut legislators, including the removal of the state’s clothing sales tax exemption.
If Connecticut were to join, it would have to either eliminate the $50 exemption on which sales tax is not collected or eliminate the sales tax on clothing completely.
State Democrats had pushed to join the project this spring but met strong opposition from Gov. M. Jodi Rell, who argued in favor of moving forward with a study.
The study commission must be formed by Aug. 15, will consist of 16 members and will have its first meeting by Sept. 1. The charge of the commission is to study how joining the project would benefit the state and retailers with a report due to the legislature and governor by Jan. 15 of next year.
A report from Stateline.org writer Patrick J. Walsh was included in this story.
