Internet sales tax push coming next year

US states keen on extending sales tax online will meet in a fortnight to consider ways of doing so.

          The day may be rapidly coming when OC Tanner and thousands of other businesses large and small are going to have to decide how to collect taxes on the online sale of their products.

          OC Tanner, a privately held Salt Lake City-based that produces jewellery and other products primarily for employee award programmes, participated in a pilot programme that could herald the future of sales tax collection for many business. It's one of just a few businesses to do so.

          The pilot project was sponsored by states that want to extend sales tax collection obligations on all sales, especially internet-based transactions. As part of that effort, states are working with vendors to develop systems to simplify tax collection.

          Tanner, which made the medals for the 2002 Olympic medals, used a remote transaction server operated by Taxware International to process sales taxes on a special website selling Olympic-related merchandise. Brad Lemke, lead developer in OC Tanner's e-commerce section, liked the system. But because the pilot was limited to just four states, Lemke is uncertain whether remote transaction servers can handle the much greater transaction load generated by the firm's main retail systems.

          "I would certainly have to be convinced that it would perform well," he said.

          Uncertainty is the key word. While states are rapidly moving ahead to streamline sales tax collections and open the door for mandatory sales tax collections, businesses such as Tanner and Wal-Mart Stores have many questions about how these systems will ultimately perform.

          Wal-Mart isn't likely to use a remote transaction server to automate sales.

          "The last thing we need to do is overload the telecommunications industry with trying to tie duplicate number of telephone lines into every register for tax rate calculations," said Robert Jenner, director of sales and use tax compliance at Wal-Mart.

          But the retail giant is interested in an alternative plan by the states that would "certify" a company's in-house tax systems as complying with state rules. Businesses whose systems meet certain performance and accuracy levels would be freed from expensive tax audits. But those standards haven't been set.

          Dave Bullington, a Wal-Mart vice-president, said the simplification effort is "extremely important" among retailers that now face a daunting mix of rules and sudden tax rate changes that leave them little time to adjust their systems.

          The states actively involved in streamlining sales taxes will meet in a fortnight in Chicago to ratify an agreement for state-by-state approval of sales tax simplification plans.

          Some 20 to 30 states are expected to pursue legislation, and as soon as proponents get 10 states representing 20% of the US population to simplify tax rules, they may seek congressional approval as early as next year for mandatory sales tax collections nationwide, said Diane Hardt, a Wisconsin tax official and co-chairman of the Streamlined Sales Tax Project.

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