The need for standards in multistate transaction taxes

Abstract

■ The growth of global electronic commerce has highlighted the need for standards in the taxation of transactions as those taxes are applied to interstate commerce. Multistate standardization is necessary as a precursor to even beginning the discussion of international standardization. elecommunications taxes are perhaps the most glaring example of the desperate need to simplify tax systems. AT&T files more than 39,000 tax returns annually to states, cities, towns, schools, and even mosquito abatement districts. That’s a tax return filed every three minutes. Nor are those tax returns all alike. Each state, and sometimes each local jurisdiction, has different forms, registration requirements, filing deadlines, rules, and even different types of taxes. State transaction taxes (sales and use taxes) are even worse. Such taxes apply to nearly every purchase of tangible personal property made in the US, as well as many services. While most states have imposed some centralized structure on the tax collection process, there are still some in which tax reporting must be done in each local jurisdiction. This can mean three returns for a single sale (city, county, and state). Each state, and sometimes each local jurisdiction, has different laws on what is and is not taxable. In some states, some clothing is exempt—but the exemption turns on such issues as whether or not a pair of gloves are sports gloves, dress gloves, or a necessity for weather protection. Hay can be taxable or exempt, depending on whether it is fed to a cow or a horse. (The cow produces milk, while the horse is just used around the ranch—it doesn’t really produce anything.) What about ostrich meat—is that food consumed by humans? And what determines whether an edible product is non-taxable food or a taxable snack? The states, which have created this mess, readily admit that collection of the tax is much too hard for the states to do themselves—so they impose the collection obligation on the seller. And not on just the local seller, who after all might be able to learn all the laws of its own state, but also on the “remote” (out-