Only two things are certain in life, and one of them just got a lot more complicated.Making its way through the House is a bill that could transform the U.S. tax code, and in effect, permanently change how online retailers do business.

H.R. 3396, the “Sales Tax Fairness and Simplification Act,” was brought before a Judiciary subcommittee in December. The bill is the by-product of the Streamlined Sales Tax project, a movement that for almost a decade has claimed to offer a simple and modern fix for how businesses pay sales tax.

Call it a sign of the times. Currently, e-businesses that sell to customers in other states are not subject to their tax laws. A clothing website that sells a pair of pants to someone in say, Iowa, is not responsible to pay the taxes that is expected of a Des Moines retailer. Proponents of a ‘streamlined’ sales tax claim current tax laws leave traditional retailers solely responsible for state taxes, and the new bill would dissolve the gap between remote sellers and those with a physical presence in the state.

“This is about making a level playing field,” said Scott Peterson, Executive Director for the Streamlined Sales Tax Governing Board.

“There is a competitive disadvantage that downtown merchants have when they make an honest living.”

Others however, say the SST is just a way for government agencies to tap into tax revenue. Moreover, it’s a ploy by “big box” retailers to eliminate competition. Bill McClellan, VP of Government Affairs for the Electronic Retailing Association, said the SST unfairly discriminates against e-sellers, stacking substantial costs and bureaucratic compliance against retailers who sell outside a single state. ERA is a trade association that exclusively represents the $300 billion electronic retailers market.

“The big shopping mall and the small store on Main Street are under the same tax laws. As soon as the small business starts hurting, they have to find ways to compete: they create a website, they create a larger pool outside of their local jurisdiction. Something like the SST would completely crush the small guy.”

Sales tax is complicated business. There are currently 7,500 different taxing jurisdictions in the United States. Creating a new, uniform tax system would have to somehow incorporate all of those variables, not to mention the ever-changing laws that make their way to each state legislature with every passing year. Under the SST, an online seller in California, for example, would have to know the tax rate for shoes sales in Minneapolis, the number of states that exempt sales tax on food, or how many states tax sales on decks of playing cards (in case you’re wondering, the numbers are 0%, 14, and 1, respectively). Though the purpose of the Streamlined Sales Tax Project is ostensibly to develop a system that simplifies sales taxes, McClellan said it does anything but. If something like the SST becomes reality, ERA estimates there could be as many as 15,000 tax codes to administer when calculating sales taxes.

“They’re not even close,” he said. “The way they have designed it, it puts a remote seller in the position of collecting from 7,500 different tax jurisdictions without having the advantage of a physical presence. Every business would have to have a tax person on staff. I invite anyone to read (SSTGB’s) plan for collecting taxes. There are just too many variables involved.”

Peterson described McClellan’s scenario as “patently false,” stating that computer programs to automatically calculate taxes are now widely available. The Governing Board also has three ‘Certified Service Providers’ of this service under contract for both state and business use: Avalara, ADP Taxware and Exactor. A fourth company is expected to join by next year.

“Amazon.com does this every day. JC Penney does it every day. Wal-Mart does it every day. Amazon even patented its own software. This is not rocket science. It’s actually quite seamless.”

Peterson said the CSPs update their databases monthly to accurately reflect changes in state tax system. Peterson said Avalara now has accounting software for retailers in small business, offering QuickBooks plug-ins that makes the transition easier.

“You can’t run an Internet business without some form of accounting software,” Peterson said. “What’s ironic about this is that your online retailer is probably better at doing this than your mom and pop.”

The SSTGB is an initiative supported by the National Retail Federation.

“This has nothing to do with big boxes. It’s not Wal-Mart we’re trying to protect,” Peterson said.

The idea of creating a uniform sales tax is hardly new. In 1967, Kansas-based clothing retailer Bellas Hess went all the way to the Supreme Court with Illinois’ Department of Revenue, which said downtown merchants were getting hurt by out-of-state catalog companies, and should therefore be held responsible to pay taxes on goods sold in the state. The Supreme Court disagreed, stating that imposing such a burden on out-of-state retailers would violate the constitutional guarantee of due process. The result became the standard for modern federal tax laws.

The argument saw a reprise in 1992 with the Supreme Court’s decision over the state of North Dakota’s lawsuit against office supply mail-order house Quill Corporation. The Quill decision retracted part the 1967 Bellas Hess ruling, stating that a business’ physical presence can’t be the only basis for their tax liability, thereby giving rise to today’s movements like the SST. States soon began petitioning Congress for a simplified and streamlined tax law, and in 2000 the SSTGB was formed.

So far, 17 states have fully adopted the SST agreement. By July, two more are expected to join the fold.

“We can’t reduce the number of taxing jurisdictions – that just wouldn’t be possible,” Peterson said. “We can’t go to New York and tell Mayor Bloomberg that he can’t have a sales tax. The tax system in this country is complicated, but anything that makes it less complicated and less expensive for retailers is a good thing.”

McClellan remains unconvinced, stating the few states that have signed on represent only a fragment of the U.S. population, and a federal change to somehow simplify individual state tax laws won’t happen any time soon.

“I would be shocked and surprised if anyone ever came up with a simplified and easy way to do this,” he said.

- Jon Gingerich