From the Desk of Senator Bob Brunkhorst

October 03, 2005

X-mas gifts bought over the internet may include sales tax this year....

If you bought Christmas gifts via the internet last year, you most likely did not pay your sales tax. This year some companies may be collecting sales taxes on behalf of the state. Iowa is one of 18 states participating in the Streamline Sales Tax Project (SSTP), a voluntary initiative to encourage businesses to collect and remit sales tax in every state which they makes sales. For the most part this impacts people that makes purchases over the internet, catalog or the phone.

Why can't states just force out-of-state companies to collect the sales tax as they do to in-state companies? Due to the complexity of knowing what to charge the U.S. Supreme Court ruled in the National Bellas Hess Inc v. Illinois Department Revenue (1967) and again in the Quill Corp.
v. North Dakota (1992) that states cannot impose collection of sales taxes on vendors who don't have a physical presence in their state (ie.
this is called nexus).

This ruling did not eliminate the sales tax liability for remote sales, just shifted the responsibility for remitting the tax from the retailer to the consumer. Yes, the consumer is still suppose to pay the tax!

The 2001 Iowa approved and started moving forward on the SSTP process.
As of July 1st last year we modified our sales taxes to be in compliance with the model definitions of products to be taxed or not. Some of the changes related to how we source a sale, now the tax rate is determined by the destination of the transaction. Several changes were also made in the food category, for example gum and juices that contain less than 50% real fruit juice are taxable and even vegetable plants and seeds.

SSTP coalition states not only simplified their sales tax definitions, but they also certified vendors that determine the correct tax on any sale. So instead of each marketing company reinventing the wheel, they can hire a certified vendor and reduce the work and eliminate their risk of incorrectly collecting sales taxes.

So now what? The members states are now encouraging retailers to sign-up by creating a tax amnesty period. So companies can sign-up and start collecting sales tax to eliminate any past problems of collecting taxes via transactions over the internet, catalog or phone.

I believe after this amnesty period many states will begin to aggressively enforce the nexus laws. So if a retailer sends delivery trucks through the state, sends a repair/service team into the state or even has a joint partnership with an in-state firm, the state may want to talk to you.

Currently, Iowa has registered around 25 retailers and has collected close to one million dollars in sales tax. Most of these early adopters had potential nexus problems with state.

If you would like more information about this subject, please write to me at Sen. Bob Brunkhorst; 413 10th St NE; Waverly IA 50677, or you can E-mail me at bob.brunkhorst@legis.state.ia.us. You may also call me at home at (319) 352-0065.

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