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All the software and systems for this are already in place for 24 states. There are services which will do a sales tax calculation for you, or you can download all the data files The required inputs are ZIP code (9 digit ZIP code in a few cases where a ZIP code crosses a tax boundary), product class, and date (for "sales tax holidays"). It's complex because the interstate consortium that does this has to accommodate all the vagaries of state sales tax law in each state.

The idea is that small businesses sign up with a service provider, and send them one check for all state taxes plus an XML file of the transactions. Big businesses will probably run their own software. Expect to see this as a standard component of most shopping cart programs.

What the Federal law is about is getting all the states on board for this, and applying it nationally. There's even a huge loophole - "Online sellers with less than $1,000,000 in remote sales annually will be exempt from collection requirements. Remote sales are sales to customers in states where the seller does not already have a physical presence." eBay lobbied for that, yet they're still whining about the law.

Although I'm only vaguely familiar with the so-called Streamlined Sales and Use Tax Agreement, I've read enough about it to know that calling it "streamlined" is a major misnomer. The rules behind SSUTA are sufficiently complex as to require computer software to calculate taxes due on particular kinds of items purchased by residents of particular states.

Yes. The problem is that SSUTA is backwards-compatible with existing state sales tax laws, which are different in each state, include local taxes, and have all sorts of weird exemptions. There are even places where a tax boundary doesn't align with a ZIP code boundary, and the street address has to be standardized and looked up to determine the taxing jurisdiction.

This is because SSUTA is an interstate compact, put together by people with limited political clout. Nobody was in a strong enough position to standardize nationwide what gets taxed. However, at least they did agree on a standard set of definitions, and then each state has a table. There's a company trying to hammer all this into XML and put it out on an RSS feed, but trying to get all the states to get their act together and fix their data errors has been tough. Getting state legislatures to adhere to the SSUTA rule that rates can only change at the beginning of a calendar quarter has been tough. Federal legislation can get all the states standardized on little stuff like that.

Also, only 24 states have signed up, not 44.

establish a tax clearinghouse that any merchant can plug in to, and then anybody who collects money online can take advantage of their existing ecommerce infrastructure to both calculate and deliver the correct amount of tax to the clearinghouse, which then tags it with the EIN of the employer and sends it directly to the state and/or local government, each of which would pay a small percentage or else a flat fee based on their size to run the clearinghouse.

That's already in existence. The Streamlined Sales Tax Agreement set up the framework, and there are six "certified service providers" which connect up with shopping cart systems, take the address and commodity code, calculate the tax, bill the merchant, and pay out the correct amount to each jurisdiction. The problem is that only 24 states have enacted legislation to work with this system.

It's not getting retailers to comply that's hard. It's trying to get state legislatures to go along. Some states have tax exemptions for specific products, and legal decisions in different states have resulted in inconsistent definitions. Some states have "sales tax holidays". Federal legislation was introduced in 2007 to make this work nationally, but it didn't pass.

As some have already mentioned, collecting sales taxes cross-state is a significant burden since, in some states, the rates may differ even from one side of a street to another. Using ZIP codes does not provide enough granularity to determine the proper rate. With this in mind, several states started the "streamlined sales tax project" which aims to provide the data for determining the proper rate, a single point of reporting and indemnifying businesses from errors in the rates supplied. If every state which imposed a sales tax adopted this system, it would practically eliminate the burden facing Internet (and traditional mail-order) businesses today.

That said, enforcing the use of this system would require Federal legislation and, even then, there will still be the issue of purchases from other countries. I'm not so sure that it's a good idea to get the Federal government involved anyway since they might be too tempted to add a Federal sales tax as well.

There's a plan to make interstate sales taxes work, from the Streamlined Sales Tax Governing Board, which is an organization set up by multiple states to coordinate interstate sales taxes. The problem is that it doesn't have enough clout to get the states to standardize.

The basic idea is that the sales tax calculation software takes in the destination address and the commodity code, and comes up with the sales tax rate. But the organization doesn't have enough clout to make state legislatures standardize. Only about 25 states have signed up.

They've made some progress, though. Those 25 states have agreed that sales tax rates can only change quarterly, they've agreed to use a standard dictionary of classes of items, and they have uploaded boundary files of taxable areas. For those states, rates and boundaries are available for FTP download. Some states have trouble with the concept of "one sales tax rate per zip code", and the organization is struggling with this.

There are three "certified service providers" who can handle the sales tax payments for merchants. They plug into the shopping cart system, calculate the sales tax, and bill the merchant for total sales taxes collected. They then pay out sales taxes to all the states involved. So the merchant only has one bill.

So the machinery is in place to make this work. Sort of.

There's a plan to make interstate sales taxes work, from the Streamlined Sales Tax Governing Board, which is an organization set up by multiple states to coordinate interstate sales taxes. The problem is that it doesn't have enough clout to get the states to standardize.

The basic idea is that the sales tax calculation software takes in the destination address and the commodity code, and comes up with the sales tax rate. But the organization doesn't have enough clout to make state legislatures standardize. Only about 25 states have signed up.

They've made some progress, though. Those 25 states have agreed that sales tax rates can only change quarterly, they've agreed to use a standard dictionary of classes of items, and they have uploaded boundary files of taxable areas. For those states, rates and boundaries are available for FTP download. Some states have trouble with the concept of "one sales tax rate per zip code", and the organization is struggling with this.

There are three "certified service providers" who can handle the sales tax payments for merchants. They plug into the shopping cart system, calculate the sales tax, and bill the merchant for total sales taxes collected. They then pay out sales taxes to all the states involved. So the merchant only has one bill.

So the machinery is in place to make this work. Sort of.

There's a plan to make interstate sales taxes work, from the Streamlined Sales Tax Governing Board, which is an organization set up by multiple states to coordinate interstate sales taxes. The problem is that it doesn't have enough clout to get the states to standardize.

The basic idea is that the sales tax calculation software takes in the destination address and the commodity code, and comes up with the sales tax rate. But the organization doesn't have enough clout to make state legislatures standardize. Only about 25 states have signed up.

They've made some progress, though. Those 25 states have agreed that sales tax rates can only change quarterly, they've agreed to use a standard dictionary of classes of items, and they have uploaded boundary files of taxable areas. For those states, rates and boundaries are available for FTP download. Some states have trouble with the concept of "one sales tax rate per zip code", and the organization is struggling with this.

There are three "certified service providers" who can handle the sales tax payments for merchants. They plug into the shopping cart system, calculate the sales tax, and bill the merchant for total sales taxes collected. They then pay out sales taxes to all the states involved. So the merchant only has one bill.

So the machinery is in place to make this work. Sort of.

Actually, they are setting something up. See http://www.streamlinedsalestax.org/ for the streamlined tax project. 22 states are part of the project with more petitioning for inclusion.

Well, I guess it would be a 'use tax' evasion. The number of entities who do make proper declarations is higher than you might think when consider B2B transactions. This is from a research paper I wrote last semester:
"Though, business-to-business compliance is estimated to be much higher (Bruce & Fox, 2009). Estimated losses of revenue at the national scale as a result of non-compliance in 2007 are $7.2 billion. Losses are expected to grow by 36.3% to $11.3 billion by 2012 (Bruce & Fox, 2009). "

Bruce, D. & Fox, W.F. (2009) State and Local Government Sales Tax Revenue Losses from Electronic Commerce. Retrieved from http://www.streamlinedsalestax.org/Execitive%20Committee/Previous_meetings/4_13_09/SSTP%20e-commerce%202009%20REV041309.pdf

(there's your bloody citation ;)

They've already been there and done that.

BTW, there's been a noteable increase in Wall Street Journal stories on Slashdot - certainly has improved the quality - kudo's to the editors and Carl Bialik from the WSJ

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The Internet tax ban is on discriminatory taxes--taxes that only apply to Internet-based sales--and also tax on use of the Internet itself. Use taxes already apply to almost all Internet-based interstate transactions, just as they have always applied to catalog/mail-order sales. There's nothing unconstitutional about them. (What is probably unconstitutional is the federal government collecting tax on interstate commerce, or perhaps states levying discriminatory taxes against interstate commerce--that is, state-level import/export taxes. I'm not an expert in the Constitution or in tax law.)

The reason you currently don't pay a state or local tax on transactions where the seller does not have a physical presence in your state, is not because the tax itself is unconstitutional, but because it's an undue burden on the seller to have to figure out the intensely complicated state and local tax rates for everyone in the country. At least, this was the case almost 40 years ago when the US Supreme Court decided this (google for National Bella Hess, Inc. v. Dept. of Revenue of Illinois (1967)). So you actually do owe tax for every purchase, Internet or otherwise (unless you live in a state without sales/use tax)--it's just not legal for the state to require the seller to collect the tax, and it's not practical for the state to come after you.

Plenty of people are trying to change this sorry state of affairs, because as you say, the Internet wasn't around when the rules were made. The main approach seems to be to simplify the state and local sales tax codes across the country, so it would no longer be an undue burden on retailers to calculate the appropriate tax, and Bella Hess could be overturned. 1, 2, 3.

The idea is that if you buy something in one location to be delivered to your home, the seller would have to collect sales tax for your location.

For my state, Kansas, it would work like this - I buy a chair in Wichita to be delivered to my house (3 counties away). The furniture store would have to collect my county's sales tax, not the Wichita tax.

It's a controversial setup, with many problems that don't have solutions yet, but it is probably the direction that sales tax collection is going.

The Streamlined Sales Tax Project "will develop measures to design, test and implement a sales and use tax system that radically simplifies sales and use taxes."

The idea is to get many states to agree what should be taxed, e.g., books: yes, bread: no. When a large number of states agree, then Amazon and other retailers will be able to collect taxes on book sales for all those states and not collect taxes on bread sales.

The confusion of 50 different sets of tax rules will not exist. Once the majority of states agree on what should be taxed, then a simple lookup by zip code would produce the correct tax on every purchase. This would be true for phone orders, mail orders, and internet orders.

The most difficult part will be the remittance of the tax to the fifty states. That is why most porposals include exemptions for small retailers. Amazon should have no problem sending quarterly payments to each state based on the zip code given by the buyer.