The Streamlined Sales Tax Project - Amendments to the Streamlined Sales and Use Tax Agreement

On April 16, 2005, member states of the Streamlined Sales Tax Project (the "SSTP") met in Washington D.C. and amended the Streamlined Sales and Use Tax Agreement (the "SSUTA"). These sweeping amendments represent significant movement toward implementation of the SSUTA. The following is a summary of the major changes.¹

The SSUTA was amended to create a new category of membership: associate membership. Associate members include states that have enacted all necessary conforming provisions, which are not yet in effect but are scheduled to take effect on or before January 1, 2008. Associate members also include states that are found to have achieved substantial compliance with the SSUTA, but not necessarily each provision as required. An associate member has all the rights and privileges of a full member, except that it may not vote on amendments to or interpretations of the SSUTA once the SSUTA takes effect.

Associate members will be counted to determine whether the threshold requirements of the SSUTA are satisfied. The SSUTA currently provides that it would take effect only after at least 10 states comprising at least 20% of the total population of all states imposing a state sales tax had petitioned for membership, and those states’ laws had been found to be substantially compliant with each of the requirements of the SSUTA.²

Associate membership is critical to launching the Governing Board this year. Based on preliminary compliance reviews of states that already have or that will petition for membership in the Governing Board, it seems clear that without the "associate membership" class, the states would be unable to meet the necessary compliance threshold. Now, new associate members can be counted toward the threshold necessary to launch the Governing Board. Action on this may be seen as early as July 1, in which a vote on the petitioning states compliance will be held at a meeting scheduled in Chicago. Associate states can also be used for meeting the standards needed to bring the SSUTA into effect on October 1, 2005.

The SSUTA was amended to add the definition of "bundled transaction." A bundled transaction is defined as the retail sale of two or more products, except real property and services to real property, where (1) the products are otherwise distinct and identifiable, and (2) the products are sold for one non-itemized price. A transaction does not meet the definition of a bundled transaction if it is: (i) the retail sale of tangible personal property and a service where the true object of the transaction is the service (the true object test), or (ii) a transaction that includes taxable products and nontaxable products and the purchase price of the taxable products is de minimis (the de minimis test).

Member states are required to adopt this definition, but are not restricted in their tax treatment of bundled transactions. However, in the case of a bundled transaction that includes a specified service, the states must allow the service provider to establish from its books and records the portion of the price of a bundled transaction that is nontaxable or is subject to a lower tax rate. The specified services are: telecommunication service, ancilliary service, internet access, or radio or video programming service.

The SSUTA was amended to add a host of telecommunication-related definitions that the SSTP has been developing for several years. These newly defined terms include: "ancilliary services," "telecommunications service," "800 service," "900 service," "mobile wireless service," "prepaid calling service," and etc. The term "sales price" was amended to allow member states to exclude a separately stated charge for the installation, connection, change, or initiation of telecommunications service. The telecommunication sourcing provision was amended to cover sales of prepaid wireless calling services.

The SSUTA was amended to extend use of the Multiple Points of Use (MPU) exemption certificate to a purchaser of computer software delivered in tangible form. The SSUTA allows a purchaser of computer software that will be concurrently available for use in more than one jurisdiction to give the seller a MPU exemption certificate, shifting to the purchaser the obligation to apportion and pay tax directly to each jurisdiction where concurrent use occurs. Previously, the MPU provision was available only for software delivered electronically.

The SSUTA was also amended to allow a seller of software to collect sales tax based on a method of apportionment supported by information provided by the purchaser when the purchaser does not deliver an MPU exemption certificate. If the purchaser certifies to the accuracy of the apportionment and the seller accepts the certification, the seller is relieved of any further collection obligation in the absence of bad faith.

Provisions relating to drop shipments transactions were also approved. The SSUTA was amended to allow a third-party vendor (e.g., drop shipper) to claim a resale exemption on a drop shipment sale based on an exemption certificate provided by its customer/re-seller, or any other acceptable information available to the drop shipper evidencing qualification for a resale exemption. The resale exemption would be unaffected by the registration status of the customer/re-seller in the state where the sale is sourced. The rationale for these amendments, along with a state-bystate survey of drop shipments, were set forth in an issue paper also approved by the states.

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