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Streamlined Sales Tax, Nexus and Online Retailers

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Streamlined Sales Tax, Nexus and Online Retailers

The Streamlined Sales Tax Project (“SST” or “Project”) was primarily intended to simplify the collection and remittance requirements imposed on U.S. businesses of all sizes. The SST Governing Board adopted the Streamlined Sales and Use Tax Agreement (“SSUTA”) in November of 2002 and began registering business that chose to collect and remit sales and use tax in member states regardless of whether or not they were required to do so. At the time, many of these registrants were seeking amnesty for unpaid tax in an effort to move forward with a clean slate.

Has the reason for registering with SST changed over the years? Yes, the reasons have and will continue to change as the result of states beginning to extend nexus to remote sellers via their “affiliates” or other related companies operating within the state. But was this the intention of SST all along?

As large states, such as New York, Texas and California, begin to reinterpret their definition of nexus and extend it to remote sellers, the value of SST becomes increasingly important, even for those states that are not members of the Project. Since the SST Governing Board adopted the SSUTA, they have consistently promoted federal legislation that would overturn the 1992 Quill decision that currently prevents states from asserting nexus over remote sellers. By holding fast to a clause in Quill that would allow Congress to overturn the decision provided that the burden on sellers to collect and remit is sufficiently minimized, SST has laid the framework for its member states, and possibly non-member states, to begin imposing nexus on remote sellers that wish to conduct business in the state. With several reliable and affordable software solutions available to taxpayers of all sizes and needs, as well as the shift of that burden from taxpayer to the taxpayer’s Certified Service Provider for accurate tax calculation, it would appear that SST has successfully put in place a model that can be adopted by all states allowing them to very easily assert nexus over remote sellers.

The current bill before Congress (HR 5660: full text available at would enact federal legislation that would allow SSUTA member states to begin requiring all remote sellers that do not meet the small business exception to collect and remit sales tax in their state. This small business exception is sparking debate with California lawmakers and has garnered significant negative feedback in several other states where no such exception exists. Would a re-drafted version of the ruling, which includes a small business exception, be more readily accepted? Reactions and general opinion among the business community indicate that states want a new ruling. The SSUTA was written with the intention of minimizing tax burden on small businesses, but the California law does not always agree.

So, where do we go from here? It is doubtful that California will become a member to the SSUTA any time soon. The same is true for other larger states like New York and Texas. However, federal legislation that overturns the Quill decision may give these states the fuel that they need to get all-encompassing laws passed. States may still have to contend with large remote sellers cutting ties with their state, as Amazon has done in New York, Illinois, South Carolina and Texas, but they should be in a much better position to begin requiring collection.

BTW - In addition to our SST blog posts (below) - don't forget to check these other Streamlined Sales Tax (SST) resource pages on

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5 Responses to Streamlined Sales Tax, Nexus and Online Retailers

  • Posted by December on October 11, 2011 9:41am:

    Origin-based vs destination-based. We have a manufacturing company located in Arizona (orgin-based). Our product is delivered to various states and installed by Arizona employees. Do we collect Arizona sales and use tax or the destination state sales and use tax.

    • Posted by Author photo of Cory BarwickCory Barwick on October 11, 2011 9:54am:

      Origin and destination rules really apply when the transaction starts and ends in the same state. So, to the extent that you ship product outside of AZ, you should be collecting sales tax on a destination basis. If the transaction is completely isolated to AZ (e.g. shipped from AZ to and AZ address) the origin rules will apply and you will need to collect on the origin. Beware that sometimes installation service may cause the transaction to be treated differently as you will, generally speaking, collect service tax where the service is actually performed. If you need more help with the sourcing of services to AZ, you might want to consult with your CPA or other trusted tax advisor. ~Cory

  • Posted by Bill on August 9, 2011 2:46pm:

    I have had problems determining whether a company has nexus, so would appreciate input whether my approach to sales tax nexus issues are reasonable. Specifically, city sales tax nexus for a company that sells products via the internet, and has a physical presence in Arizona and Colorado.
    A few states, including Arizona and Colorado, require the filing of separate city sales tax returns. So there are also city nexus questions.
    Although it has been awhile since I researched these issues, I am still curious.
    Based on my interpretation of relevant case law, out-of-state remote sellers generally meet the nexus standards if they have an office or place of business, agent, or property in the taxing state. Nexus is not established if the seller’s property is insignificant. This is largely based upon two important cases – Quill and National Bellas Hess. Quill Corp. v. North Dakota, 504 U.S. 298 (1992) draws a distinction between the due process clause and commerce clause requirements which requires some sort of physical presence. Because this comes from the presence of either people or property in the state (or presumably, the city in this case) one is left with two questions.
    First, what kinds of activities can people perform before that activity constitutes more than the slightest physical presence? The company has no relevant people presence in most cities. Second, how much property can be stored, used, or distributed in a state and for how long before that activity triggers nexus? National Bellas Hess Inc. v. Department of Revenue of Illinois, 386 U.S. 753 (1967) addresses nexus standards for mail-order sellers. Does a retailer create nexus when it makes deliveries in another city in its own trucks? A Maryland court in 1954 said no - when a company made occasional deliveries in its own trucks. However, a Missouri court ruled in 1996 that a company making 100 deliveries per month in its own trucks did create nexus. Based upon these standards, the company does not have nexus in the cities we are considering. The company does not use its own trucks – only those of a third party such as Fedex/UPS which further decreases the possibility of a presence. Next, consider a state’s determination of nexus for sales tax and how that might compare to the smaller scale of a city. This may be where a citys’ interpretations below come into play.
    According to the state of Colorado, cities that collect their own local sales taxes must be contacted directly for their tax laws and regulations. So, I researched the laws for several cities and provide some examples:
    • The city of Westminster claims that there are a variety of common misunderstandings regarding internet sales. They claim that remote retailers must collect sales taxes because they use local community services and it is appropriate that they support those services through tax payments. This seems contrary to relevant case law.
    • The city of Pueblo claims that a retail sale of tangible personal property (not specifically exempt) is subject to sales tax. In all cases, Pueblo claims the vendor has the burden of proof to establish that a sale is exempt from tax. Pueblo has many categories of exemptions, but remote sales do not fall under any of those exceptions. The closest example provided that would permit such evidence of exemption are delivery receipts or other evidence that sales were made to a non-resident or delivery was made outside of Pueblo. This is also an awkward interpretation – creating the “assumption” of nexus unless a business can prove otherwise is unusual, and at least unreasonable.
    • Cities of Boulder, Englewood, and Fort Collins utilize an almost identical template created by the state. They require that a vendor making more than one delivery within a 12-month period in those cities are thus engaged in business and must collect city sales tax. So, the cities seem to interpret the cases discussed above to suggest that if 100 deliveries a month in the state is substantial, thus two in a year for a city must also be substantial. Again, I think this interpretation is a little far-reaching, especially as we are using common carriers.
    Arizona and the other cities have laws on the books that are very similar to these examples. A taxpayer has never spent the time and effort necessary to sue for a definitive decision (at least not one that I can locate).
    So the retailer wants to “follow all laws”, (even these City laws on the books) that may seem quite ridiculous. However, a more flexible interpretation considering case law that is contrary to a city’s municipal code, also seems quite reasonable and pragmatic to me.
    So I developed a compromise with these voluminous and time consuming city filing requirements and file a return only under these circumstances when:
    1. We have nexus through affiliation when we have a retail outlet in the city
    2. The city offers internet filing of the return (web filing is easy when no physical check is required)
    3. The city requires only annual filing
    4. The amount of computed sales tax due is over a certain threshold, of say, $100 monthly tax (If the amount of city sales tax is over $100 monthly ($300 quarterly) then we file, otherwise we remit the excess amount collected to the state).
    This means that half of the Colorado city returns and two-thirds of the Arizona city returns would not be filed. However, since we collected the tax from the customer, we would still need to remit the excess collected to the state. We are not crooks, after all.
    So, the only savings we would benefit from, is not completing the city sales tax permit applications, and about 5-6 hours of time spent per month not printing a return, and preparing/mailing checks.
    Whatever scenario we decide to pursue, it seems that there should be an easier answer to these annoying problems.

  • Posted by Ray on July 19, 2011 2:59pm:

    Proponents of e-fairness looking to drive a stake through the heart of this festering, pernicious inequity should go back to the same place that naively caused this problem to exist, the Supreme Court, by using Amazon's appeal on New York state's Amazon Tax legislation as a vehicle to get the court to reverse its Quill vs. N.Dakota decision.
    With our legislative bodies grid-locked, polarized and dysfunctional, the Congressional legislation is unlikely to happen thus leaving the Supreme Court as the only sheriff in town.

    • Posted by Author photo of Cory BarwickCory Barwick on July 20, 2011 2:21am:

      I would agree with you that this would be a very viable option as well, however, what is the likelihood that the Supreme Court will reverse it's opinion when they have already provided a vehicle for that opinion to be reversed? For me, I just see a very big inequity as you so aptly put it that needs to be addressed.


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