The National Governors Association supports state efforts to pursue, through negotiations, the courts, and federal legislation, provisions that would require large out-of-state mail order firms to collect sales and use taxes from their customers. Such action is necessary to restore fairness to competition between local retail store purchases and out-of-state mail transactions and to provide a means for the states to collect taxes that are owed under existing law. The recent rapid growth of the Internet has underscored the importance of this equitable treatment. The Governors have called for the development of a twenty-first century sales tax that can achieve this fairness for all forms of sales: Main Street, mail order, and Internet. A streamlined sales tax with simplified compliance requirements will ensure that states are prepared to support the global electronic marketplace of the new century.

The U.S. Supreme Court in the Quill decision explicitly reaffirmed the authority of Congress to address state tax issues that affect interstate commerce. Although state action is needed to simplify the sales tax, federal action will be needed to ensure that it can be fairly applied.

The Governors call for joint industry/government development of a simplified sales tax system, including greater consistency among states in definitions, forms, and rules, and significantly easier compliance, reporting, and audit requirements. The Governors support the work of the National Tax Association's Communications and Electronic Commerce Taxation Project, the Northwest Regional Sales Tax Pilot Project, and other joint efforts. Sales tax simplification should conform to the following principles.

12.2.1 One Sales Tax Rate per State. States will continue to have the option of not imposing the sales tax. In states where a sales tax is levied, each state will need to establish a single rate for remote sellers to collect. States will also need to establish a method of distributing to local governments their appropriate share of such taxes.

12.2.2 Uniform Structure and Simplified Compliance with the Sales Taxes. The Governors call for joint industry/government development of a system in which the definitions of the goods or services that may be taxed are uniform and consistent across state lines. States will be allowed to choose whether or not to tax specific goods or services that are uniformly defined across all states. Besides simplifying the tax, these definitions will give states the ability to identify and address instances where discriminatory or multiple taxation currently exists. The Governors also call for joint industry/government development of significant simplifications in the administration of the sales tax in areas such as uniform registration, tax returns, remittance requirements, and filing procedures.

One potential approach to administration of sales taxes would be to encourage establishment of a system of independent third-party organizations that would be responsible for remitting taxes to the states. Remote sellers would use a software package preapproved by the states that would calculate the tax due on the purchase based on the state rate where the item is sent, and electronically remit that tax to the collection organization. Remote sellers that opt to use the third-party system would enjoy additional benefits of compliance, including not filing returns and not remitting funds to states.

The Governors call on Congress to re-establish fairness in state sales tax systems by requiring remote sellers to collect sales taxes for any state that simplifies its tax system in accordance with the foregoing principles. States that choose not to simplify the sales tax would retain a narrow and limited physical nexus standard. The expanded duty to collect would require remote vendors to collect sales and use tax in every state where they sold taxable products and services only if:

• they had national sales above some de minimis level in the past year; and
• they had sales to that individual state's consumers above some lower de minimis level in the past year.

It is the Governors' intention that small companies (for example with annual gross sales below $100,000 or $200,000) should not be required to collect state sales taxes on out-of-state sales except under the proposed independent third-party administration system described above. Even in that instance, there should be no charge to such small companies.

Time limited (effective Winter Meeting 2001 - Winter Meeting 2003).
Adopted Winter Meeting 1999; reaffirmed Winter Meeting 2001.