Since the Streamlined Sales and Use Tax Agreement ("SSUTA") and the Governing Board came into effect on October 1, 2005, over 200 businesses have registered under the Central Registration System ("CRS") to collect sales and use taxes for member states of the SSUTA. In the mean time, some terms of the SSUTA have been amended or clarified, while others remain subjects of debate.
The Governing Board Intends To Extend The Amnesty Period For Qualified Sellers
Under the SSUTA, the 12-month streamlined amnesty period starts to run when a state becomes a full member of the SSUTA. However, since no Certified Service Provider ("CSP") or Certified Automated Software ("CAS") 1 is available at this moment, questions have been raised as to when the amnesty period should begin for sellers who registered to use a CSP or CAS for collection.
In a meeting held on November 9, 2005, the Governing Board voted to recommend that for sellers who registered to use a CSP or a CAS, the amnesty period will be extended by each member state to include a period of one year after adequate CSP or CAS services become available. If a member state cannot implement this intent of the Governing Board, it must notify the Governing Board and post its policies on the state’s web site and the Streamlined web site. 2 It appears that most member states have accepted this proposal. 3 However, Michigan indicated that it may not be able to extend the amnesty period beyond October 1, 2006. Mike Eschelbach, Administrative Law Specialist of the Michigan Department of Treasury Tax Policy Division explained that, pursuant to Michigan’s enabling statutes, the streamlined amnesty offered by Michigan will be available only for a 12 month-period starting from October 1, 2005 through September 30, 2006. Accordingly, Eschelbach noted that Michigan could not administratively extend the amnesty period without amending its enabling statutes.
For Qualified Sellers, Collection Obligation Will Not Begin Until 60 Days After Adequate CSP Or CAS Services Are Available
In the meeting held on November 9, the Governing Board also determined that for sellers who registered to use a CSP or a CAS, their obligation to collect sales and use tax for the member states will not begin until at least 60 days after adequate CSP or CAS services become available. The obligation to collect sales and use taxes for 36 months as required under the SSUTA to be eligible for the streamlined amnesty will begin on the date the collection obligation begins. In other words, for sellers who registered to use a CSP or CAS, the streamlined amnesty will be extended to cover the window period starting from a seller’s registration date through at least 60 days after a CSP or CAS becomes available.
Again, Michigan indicated that it may not be able to provide the streamlined amnesty for such window period. Under Michigan’s existing statutes, Eschelbach explained that a seller must start collecting and remitting sales and use taxes once the seller registers under the CRS, regardless of what model of collection the seller uses. "Under Michigan law, the amnesty provisions apply to sellers that, once registered, collect and remit applicable taxes," Eschelbach added.
Who will Pay for the CSPs? -- States and Businesses Take Different Positions
One of the main reasons that no CSP could be certified to this date is that the member states and the businesses cannot agree on how to compensate the CSPs. The states and the businesses seem to agree that CSPs will be compensated out of new revenues collected and that CSPs will be compensated for collecting on behalf of sellers who have no nexus in a state. However, the states and the businesses take opposite positions on whether compensation will be provided to CSPs for collecting on behalf of sellers who are currently required to collect sales and use tax ("nexus sellers").
Many states on the Governing Board indicated that they oppose compensating CSPs for collecting on behalf of nexus sellers. Some states argued that their existing statutes do not allow them to provide monetary allowance to nexus sellers. Others fear that their revenue would take a big hit if large retailers with nexus in those states could switch to CSPs and get compensated by the states.
Businesses, on the other hand, believe that compensation should be provided to CSPs for collecting on behalf of all sellers, regardless of whether they have nexus in a state. Some smaller businesses pointed out that they agreed to support the SSUTA in the first place because several states assured them that they would be insulated from liability once they outsource their sales tax functions to CSPs and that the cost associated with such CSPs would be mostly borne by the states.
There’s no indication that the compensation details will be resolved in the near future. Some experts fear that this issue coupled with the debate over destination-based sourcing may derail the entire Streamlined Sales Tax Project.
Concerned about Liability for other Taxes? -- Combine the Streamlined Amnesty with VDAs
Since the streamlined amnesty applies only to sales tax, many taxpayers are concerned that registering under the CRS may expose them to liability for other potential past due taxes (e.g., franchise, income or use taxes). 4 Such taxpayers may directly contact those concerned states to pursue separate voluntary disclosure agreements ("VDAs") to resolve potential liability for other taxes. Most member states of the SSUTA provide a voluntary disclosure program. 5
Alternatively, taxpayers with potential liabilities in multiple states may contact the Mutitstate Tax Commission ("MTC") to use the MTC’s expedited VDA program. This expedited VDA program was recently developed through coordination of the Council On State Taxation ("COST"), the MTC, and member states of the SSUTA. Under this program, VDAs will be handled through the MTC’s National Nexus Program, which allows taxpayers to resolve potential tax liabilities simultaneously with multiple states. All of the member states of the National Nexus Program have agreed to process any proposed VDA for other taxes due in a SSUTA member state on an expedited basis. All of the 19 member states of the SSUTA are also members of the National Nexus Program, except Indiana and Nevada. 6 However, Indiana and Nevada have agreed to participate in this program. Stephen Kranz, tax counsel of COST, noted that one of the advantages of this program is that it provides a one-stop-shop for taxypayers involved in multistate commerce to seek for tax settlements with multiple states.
Central Registration Required for SSUTA Amnesty
A recent COST and MTC webcast reported that some taxpayers mistakenly registered directly with SSUTA member states and are, at least for now, being denied amnesty protection. Taxpayers who seek amnesty should be well versed in the procedural requirements, all future contractual obligations (even in no-nexus states), limitations of the amnesty, and options for preceding VDAs related to other tax exposures before registering under SSUTA.
Footnotes
1. CSP and CAS are two of the technology models described in the SSUTA. Under the SSUTA, when a seller registers under the CRS, it must select one of the following four models to report and pay taxes collected: (1) Model 1, where a seller selects a CSP as an agent to perform all the seller’s sales or use tax functions, other than the seller’s obligation to remit tax on its own purchases; (2) Model 2, where a seller selects to use a software that is certified as a CAS to calculate the amount of tax imposed on a transaction; (3) Model 3, where a larger seller that has developed its own sales tax software may have its own system certified by the member states collectively; or (4) an "Other" Model, where a seller determines not to use any one of the three certified models, but to use its own system.
2. The Streamlined web site is available at
http://www.streamlinedsalestax.org.3. Up to the date of print (December 12, 2005), no member state has posted any announcement against this proposal on the Streamlined web site. In fact, some states have expressly accepted this proposal. For instance, the Minnesota Department of Revenue announced that for sellers registering to file and pay sales tax using a CSP, the Minnesota amnesty period will be extended to 12 months after two service providers are certified by the Governing Board. See the Official website of the Minnesota Department of Revenue, available at http://taxes. state.mn.us/sales/tax_information/content/sstp_amnesty.shtml.
4. Note that while the SSUTA prohibits its members from using a seller’s registration information as factors in determining whether the seller has nexus in a state, the SSUTA does not prohibit its members from using such information as "audit leads" for other taxes.
5. For instance, the Kansas Department of Revenue recently announced that taxpayers that have unreported tax liability for a tax other than sales or use tax on sales, or that otherwise do not qualify for the streamlined amnesty, may be eligible for a VDA with the Department. See the official website of the Kansas Department of Revenue, available at
6. A compete list of the member states of the National Nexus Program is available at the MTC’s website, available at www.mtc.org.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.