Wisconsin Among Four States Involved in Hosted Taxation Testing

Four states--Kansas, Michigan, North Carolina and Wisconsin--will test an Internet-based tax calculation and remission system using software and services from several vendors. E-businesses in these states should be observing these tests closely, as the systems being tested may represent a cost-effective way to manage the complexities of evolving tax code, particularly in an e-business setting.

Multi-state Effort
The tests are part of a multi-state effort to take paperwork out of tax administration for merchants and tax authorities. However, it also aims to recover tax dollars that may otherwise slip through the cracks of interstate and Internet commerce

Sales and Use Taxes
"We're advising all E-business customers to begin taking steps to prepare for a world in which they are collecting and remitting sales and use taxes," said AbsoluteBusiness LLC Co-Founder and President Stephen Neils, though he cautioned that Internet-based tax-compliance systems won't be in broad use for years.

Another Acronym: SSTP?
In December of 2000, a committee comprising representatives of 29 states approved a plan, called the Streamlined Sales Tax Project (SSTP), to create uniformity in the way states administer sales and use taxes. Federal leaders have failed so far to reach consensus on how to manage taxation in an electronic age, which has led to a moratorium on new Internet sales taxes that ends October 2001. But several bills that would force retailers to collect sales taxes are pending in Congress, so states are plowing ahead.

The SSTP test involves tax collection and management software from Taxware, Vertex and esalestax.com. The software is being integrated by Pitney Bowes Inc. and Hewlett-Packard. Merchants will send live sales transaction data in real time using the Internet to one of four systems in the pilot. The number of merchants participating and the length of the pilots weren't disclosed.

A System For the Buyer, Seller or State?
Here's how the system would function: After a consumer initiates an online purchase, the e-business site would use the Internet to access a trusted third-party hosting provider that would determine sales or use taxes on the purchase, based on the locations of the buyer and the seller, as well as applicable state and local tax laws. 

The third party would be responsible for providing custom links, typically with XML, between its system and commonly used ERP or e-commerce platforms. In theory, this should make it easier for retailers to connect to the system through the Internet. 

Large Stakes, Large Expenses
Automated, outsourced tax- collection systems may insignificant today, but may prove to be a boon to states in the future. States are currently forfeiting millions in tax dollars--oftentimes due to Internet sales but not directly from the merchants themselves.

In the state of Wisconsin alone, E-commerce sales to consumers are expected to grow from $290 million to $386 million in 1999 to between $4.3 billion and $5.8 billion in 2004. (The state's DOR website was unclear if ANY of these estimated sales are being taxed and collected.)

According to Charles Collins, director of the sales and use tax division at the North Carolina Department of Revenue, "North Carolina misses out on $140 million in use taxes when North Carolinians buy goods remotely from out-of-state businesses and fail to pay use tax,."

"It could be prohibitively expensive to require E-Businesses to invest in their own tax compliance technology," Neils insists. "A multi-state approach--in which third parties are certified to manage tax compliance for E-businesses that choose to use the service rather than handle tax compliance alone--ultimately makes sense. "

Keep me informed! 
-find out when more state E-Com taxation information becomes available!