Ever since the Supreme Court of the United States put the burden back on the states to come up with a way to collect sales tax on millions of Internet sales, the Streamlined Sales Tax Project (SSTP) has been chipping away at the monumental task of getting 50 states and more than 7,000 taxing entities—cities, counties, parishes, villages, etc.—on the same page. Another part of the job was getting who-knows-how-many Internet sellers to comply. Finally, they needed software to make it happen.
As the project enters its third year, 44 states have signed on to the project, at least conceptually. However, only a third are full-member states and actively working on collection of Internet-generated sales tax. According to North Dakota State Senator Dwight Cook, president of the project, 13 states are in full-member compliance. Six are in associate-member status as their legislatures work through final legislation issues. Nonetheless, Cook says he is pleased with the progress of the project.
New revenues have been collected
“The member states have collected between $18 million and $19 million in new revenues as a result of the project. And the numbers keep going up,” Cook said. The full-member states had also put in place an amnesty program in October of 2005, which expired at the end of September this year. The program was aimed at attracting volunteer merchants, who could come forward and begin collecting and paying taxes with no fear of audit for past sins.
“The amnesty program was very successful; we got 1,050 merchants to come forward, over 300 in the last month. Those merchants are now using the Certified Service Providers and Systems to collect and remit sales tax,” Cook said. Any merchant currently selling and not complying with sales tax regulations finds himself or herself in danger of audit, if and when they come forward.
Show Me The Software
One of the major roadblocks to the project was a physical method of calculating the sales tax on any given transaction. A seller located in, say, St. Louis, would need instant access to the sales tax rates for the 7,000-plus taxing entities nationwide in which the business might sell a product. The job, as the court recognized, is gargantuan.
So, the SSTP put out the call for software designers to come up with a system that would automate the process. In an interview with Practical eCommerce last year, Cook had hoped that such a service would be available by early 2006. As it turns out, it was well in the third quarter before such software was certified. Two companies have come forward and become Certified Service Providers (CSP), and one is a Certified Automation Provider (CAS) as well. Avalara and Taxware are the two CSPs, and while the two remain separate entities, they are nonetheless cooperating in developing and making the tax-collection software available to small ecommerce merchants, according to Avalara spokesman Ned Barnett.
“We went into beta testing with 13 volunteer companies in July, and in October we came out of beta and are in full operation mode,” Barnett said.
What will the software cost?
One of the big question marks for the merchants, who knew they would one day have to comply, was the cost they would have to pay for the software.
“For SST-compliant merchants, there is no cost,” said Barnett. “We calculate and collect the tax for the merchant. Then we remit to the states and hold back a small percentage as a sort of commission.”
The calculations and collection are a background process that interface with the shopping cart, in most cases. The Avalara product also interfaces seamlessly with accounting software like QuickBooks.
Avalara comes with deep credentials, and was rated at four stars in 2005 by CPA Technology Advisor. It was named in “Top 10 Awesome QuickBooks Add-ons” by QuickBooks educator and columnist Douglas Sleeter. It currently runs an average of 4.5 transactions per second against its sales-tax engine for more than 2,000 users.
Taxware is the other Certified Service Provider (CSP), but also offers a Certified Automated System (CAS). Using CAS means the merchant can buy the software package and install it on his own system hardware. Taxware processed the first certified transactions in 2001 during the pilot run by the Streamlined Sales Tax Project.
Taxware and Avalara techs will work the merchant through setup and launch of their product, which resides on the Avalara server, not on the user’s machine.
A third provider, Exactor, was certified and has signed a contract with the SSTP. They are expected to begin offering service this winter.