SST - A great idea, but is it for everybody?

The Streamlined Sales Tax project started 25 years ago with a sensible goal: Bring order to the chaos to the U.S. patchwork system of states’ sales tax and help remote sellers meet their obligations. The SST project gained particular momentum after the U.S. Supreme Court’s 2018 Wayfair decision introduced the idea of economic nexus for remote sellers.

It has its benefits, but there can be drawbacks.

The basics

The SST simplifies terms and state and local rates, as well as uniformity of tax bases, sourcing rules and administration of exempt sales. It also seeks a single online central registration system for all “member states” that will allow sellers to register in one member state and become registered in all member states, among other goals.

Roughly half the states are full member states (Arkansas, Georgia, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, Nevada, New Jersey, North Carolina, North Dakota, Ohio, Oklahoma, Rhode Island, South Dakota, Utah, Vermont, Washington, West Virginia, Wisconsin and Wyoming; Tennessee is an Associate Member State.).

Volunteer SST sellers in multiple states can get free sales tax calculation and reporting from “Certified Service Providers” (CSPs). SST states repay CSPs for the costs to set up and integrate the SST’s certified automated system with a seller’s systems.

Sellers must register for a member state through the SST Registration System and contract with a CSP. Sellers must also meet all the following criteria during the 12 months prior to registration with a state:

• less than $50,000 of property and less than $50,000 of payroll in that state
• more than 30 days without any fixed place of business in that state
• not collecting sales or use tax in the Streamlined State
• not required to register and collect sales or use tax in that state.

So what could go wrong?

The SST says only that sellers lose CSP-compensated seller status in a member state if they no longer meet all the criteria. No fines or other punitive measures are mentioned, but neither is there any introductory indication of how and when qualification is monitored. CSP’s and others can also levy unexpected fees and charges for general accounting, billing, A/R and consulting.

You also can’t cherry pick states to register in with the SST: Registering with one state means registering with all (currently) 24 states. If you have no sales in some of these states, that could still create a zero-return filing obligation on your part.

If you’re one of the many vendors who receives a state discount (aka a vendor’s discount or filer’s credit) for efficient filing, usually 1% to 2% for you timely filing your returns. Your CSP takes that discount if you participate in the SST program, part of an overall lessening of control you may experience in some financial matters if you participate in the SST program and use a CSP.

Remember that the SST covers only about half the states, so study your economic nexus map. Will you receive the benefits of streamlining in the states where you have the most serious sales tax obligations?

With sales tax, there’s always more good and bad than immediately meets the eye. If you think your business may be impacted by sales tax complexities, contact TaxConnex to learn more about its services to become your outsourced sales tax department.