All Aboard the SSTA Express

The Streamlined Sales Tax Agreement train is getting ready to leave the station. Are you on board?

If not, you should at least be familiar with the itinerary and the passenger list.

At least 20 states have passed SSTA legislation. Since these states account for at least 20% of the population, the threshold appears to have been met to allow the SSTA to go into effect. The conductor is the SSTA governing board; it will begin checking tickets by certifying SSTA compliance in states with legislation. State tax administrators are not the only passengers — they're joined by major retailers such as Staples, Toys ‘R’ Us, Target and Wal-Mart. Some remote retailers have even gotten on board — Lands' End, for example, has voluntarily begun to collect tax on its Internet sales.

Any printer that remains oblivious to the SSTA will be as helpless as a damsel in distress tied to the tracks.

Under the SSTA, printing of direct mail advertising (which includes solo mail, envelope packets, sales fliers, brochures and catalogs) is sourced, for sales tax purposes, according to the recipients' mailing addresses. If the printer is located in a state that historically sourced sales to their origin, the new rules will be a change — and perhaps a challenge.

First, if a customer gives the printer information regarding where the direct mail is to be delivered, the printer is obliged to collect and remit sales tax for every jurisdiction (local, city, county and special-purpose tax districts) based on the delivery destinations.

Local printers are advised to avoid this responsibility; in fact, many of them may fall into the small business exemption. If these printers' annual remote sales are less than $5 million, they are exempt from tax collection on out-of-state sales.

Large multistate printers will have to be tax-savvy in order to report the correct amount of tax in every jurisdiction. Of course, if Congress does not act to support the SSTA, the printer will only have to collect taxes for areas in which it is present.

Second, if the customer provides a mailing list but doesn't indicate the taxing jurisdiction for addresses on that list, the sale falls under the general sourcing rules. In this case, the entire sale is reported to the state and locality from which the material is printed and mailed. This will result in all the tax being remitted to the printer's state unless that state exempts the sale or does not impose sales tax.

It's unclear whether interstate commerce exemptions would take precedence over the general sourcing rules in the SSTA, and printers are ill advised to assume they will. While remitting tax to the printer's state relieves the printer from any further tax risk or obligation, it may be a point of contention for the customer that may be paying a greater amount of tax than what could otherwise be owed from sourcing the sale to the delivery addresses.

Third, the customer may find it owes additional tax on the direct mail in the states where it is delivered if the tax rates in those states exceed what's charged in the printer's state.

When Not to Collect

The SSTA provides two ways a printer may be rescued from its tax collection obligation:

• If the customer provides a direct mail form to the printer, the latter is relieved of its obligation to collect sales tax on the sale of printing and mailing services to that customer. The draft of this form resembles a general exemption certificate with a check-box to signify it's issued to cover the purchase of direct mail. The direct mail form will remain in effect for all future sales of direct mail by the printer to this customer until it is revoked by the customer. It is recommended that printers located in states with SSTA legislation in effect should require the direct mail form as soon as it becomes available.

• Customers also may give printers a copy of their direct pay authority. Most states have procedures by which purchasers can register for sales tax, agree to accrue tax on their purchases, and thus relieve their vendors from the tax collection obligation. But a printer won't be able to require a customer to obtain such authority if the customer is ineligible under the state's rules. Of the states with SSTA legislation, only Nevada and Utah do not have direct pay certificates. Assuming that the printer is successful in securing direct mail forms or direct pay certificates, it is relieved of all responsibility for collecting tax on direct mail sales to that customer.

The customer is obligated, by signing the direct mail or direct pay certificates, to accrue and remit the appropriate use tax to those states where it has a physical presence. Remote sellers will have to evaluate whether registration to collect sales tax (either voluntarily or as a result of congressional legislation) will require them to accrue use tax on direct mail distributed in those states where they have no physical presence.

If the remote vendor is not convinced it owes use tax on the distribution of direct mail (a view held by the author, though it's not universal), then the proper selection of the printer and mailer could be critical in maintaining this as a use tax issue and not a sales tax issue.

A sale of direct mail materials by a printer that merely prints the materials is not treated as a sale of direct mail subject to the direct mail sourcing rules. This is a sale of tangible personal property and the sale is sourced, and tax is due, under the general sourcing rules — that is, it's based on the location where the customer takes possession or control over the printed material.

Printed material for which the recipient has paid a subscription fee is not regarded as direct mail and is not specifically addressed in the SSTA. In these situations, the purchaser should offer a resale certificate to the printer.

Next Stop: Washington

The Streamlined Sales and Use Tax Act (H.R. 3184) is federal legislation on the SSTA which was introduced in the House of Representatives last September; the first hearing already has been held. The act would give authority to SSTA states to compel remote sellers — including printers — to collect and remit tax on sales sourced to those states.

While the act is vigorously contested, most opponents would have to admit that it's gradually been catching on.

If it doesn't reach the president in this round, the measure likely will need to muster more support in the heartland before it eventually makes its way back to Washington.

MELANIE HILL is a tax specialist with DL&A Price Tax Consulting Group LLC in Greenville, SC.

Under the SSTA…

• Printing of direct mail advertising is sourced, for sales tax purposes, according to the recipients' mailing addresses rather than the advertising piece's origin.

• If a customer gives the printer information regarding where direct mail is to be delivered, the printer must collect and remit sales tax for every jurisdiction based on delivery destinations.

• If the customer provides a mailing list but doesn't indicate the taxing jurisdiction for addresses on that list, the sale is reported to the state and locality from which the material is printed and mailed.

• A customer may find it owes additional tax on direct mail in the states where it is delivered if the tax rates in those states exceed what's charged in the printer's state.

• If the customer gives a direct mail form to a printer, the latter is relieved of its obligation to collect tax on the sale of printing and mailing services to that customer.

• Customers may give printers a copy of their direct pay authority.