A Guide To The Streamlined Sales Tax Project
What is the Streamlined Sales Tax Project (SSTP)?
The Streamlined Sales Tax Project (SSTP) was created in response to the challenges faced by businesses operating in multiple US states in complying with multiple sales and use tax laws. These challenges include high administrative expenses associated with tax compliance, the complexity of navigating differing product definitions and tax rates, and tax return requirements.
The SSTP initiative was launched in 1999 as a voluntary project focused on reducing tax compliance burdens and streamlining tax administration, making it easier and more efficient for businesses. The Streamlined Sales and Use Tax Agreement (SSUTA) acts as the governing document for the member states.
US states can opt to participate in the SSTP voluntarily. To be accepted as members, states need to make certain adjustments to their tax laws and legislation to fulfill the criteria outlined in the SSUTA. Currently, 24 out of 45 states in the United States that have a general sales and use tax are part of the SSTP. These states include Arkansas, Georgia, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, Nevada, New Jersey, North Carolina, North Dakota, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Vermont, Washington, West Virginia, Wisconsin, and Wyoming.
How can states become SST members?
Joining the SST requires a specific process for admission. Interested states must first submit a petition for membership along with a certificate of compliance.
To be considered for full membership, the applicant state must receive a favorable vote from three-quarters of the existing members of the agreement. During the voting process, current members evaluate whether the applicant state is in compliance and whether the necessary changes to comply with the agreement have been implemented.
Maintaining membership also requires ongoing compliance with the SSUTA, and each SST state must undergo formal, public recertification of its compliance every year.
How does the SSUTA simplify sales and use taxes?
State level administration
There are states where local governments can administer their own sales and use tax rules and even conduct their own tax audits, creating a significant compliance expense for businesses operating there.
SST states are required to ensure that sales and use tax is administered by the state, for example, sellers must be able to register with and file returns with only the state-level authority. The state collecting the sales and use taxes could then distribute the tax revenue to the local jurisdictions.
Furthermore, local jurisdictions are also generally prohibited from conducting independent tax audits.
Uniformity of major tax base definitions
One of the key benefits of the SSUTA is the uniformity it provides in creating standard definitions for important sales tax vocabulary. States vary significantly in how they define products and services. Even minor differences in how individual states define these terms can become a challenge for businesses operating across state lines, requiring increased resources in light of the increased complexity.
The SSUTA has standardized the definitions of over 100 different administrative terms, products, and services for application in the sales and use tax laws of participating states (e.g., computer software, digital products, etc.). With uniformity in definitions, it becomes easier for businesses operating in multiple states to determine whether their products and services are taxable or exempt in that particular SST state.
Each participating state is required to indicate the tax treatment of items identified in the SST Taxability Matrix, along with a reference to applicable laws, rules, regulations, or other written policies.
Simplification of State and Local Tax Bases and Rates
Keeping track of what states tax and don’t tax is complex, especially when the local governments do not tax the same products or services as their state. The SSUTA requires a member state and its local governments to tax or exempt an identical basket of products and services.
Furthermore, with a few exceptions, SST limits local governments to having only one tax rate, and if they have both a sales tax and a use tax, the rates have to be identical. Local taxes in SST states may change only once a quarter, with the effective date on the first day of the month, and changes to tax rates and local government boundaries must be communicated well in advance.
Central, Electronic Registration System
The SST Registration System provides a single platform where businesses can easily register for sales tax in the member states and make changes to their registration information. This avoids the need to deal with different registration requirements and having to interact with multiple state agencies.
The registration process is simple and efficient, requiring less information than businesses would need to provide if registering directly with each state individually. Businesses can use the system to register in any of the 24 participating SST states, depending on their needs. Once registered in a particular state, businesses are required to collect and remit sales tax in that state even if they don't have nexus there.
Uniform Exemption Certificate
The SST states created a simple one-page certificate that could be used for every exemption reason. Each SST member state is required to allow businesses to use the SST exemption certificate, which is accepted by all 24 SST member states.
How can Fonoa help with sales and use tax?
Given the complexity of sales and use tax, staying compliant can be daunting for many businesses. Fonoa offers a global tax engine that can be a valuable tool for companies operating in the US, providing a simple and efficient solution for managing sales and use tax obligations.
Get in touch to discover how we can help you meet the challenges and take the complexity out of tax.
