What do Arnold Schwarzenegger, budget deficits, sales tax legislation and postage have in common? Let’s put it another way: Do you think the Terminator would be in a recall election against Gov. Gray Davis if California wasn’t facing a multibillion-dollar budget deficit?
Virtually every state is facing budget problems and is looking to the Streamlined Sales Tax Agreement (SSTA) to dramatically increase sales tax revenue. It’s estimated that California’s annual sales tax coffers would increase by $1.75 billion if tax were collected on purchases from out-of-state sellers. While the states are aiming to collect tax through remote sellers, they’re also increasing tax collected from local businesses by broadening the sales tax base when they adopt SSTA legislation. Many states have already broadened the tax base to include postage and other delivery charges in the definition of a taxable sale where such charges were previously not taxable.
Ohio is one example. The tax base now includes postage and delivery charges in the computation of tax due on the sale of retail goods. Therefore, postage charges incurred in connection with the delivery of printed material are taxable. While Ohio is not the only state to make this change, its early effective date (Aug. 1) likely caught many printers unawares. Most states that have adopted SSTA legislation have ruled to tax postage and delivery charges incurred in connection with the sale of printed material. But there are exceptions.
There’s an optional provision in the SSTA that allows an exclusion for postage and delivery charges if they are separately stated on the invoice. Most printers do this anyway, so they need to change their procedures to claim this exclusion if they are doing business solely in a state that has enacted this provision. Variations on this exclusion exist in some states.
Iowa, for example, now taxes delivery charges, including postage, but excludes them if they are separately contracted for and separately stated on the invoice. This was added by Iowa and not included in the SSTA. Iowa printers will need to determine what documentation will be needed to prove postage charges were separately contracted. Since the goal of the SSTA is purportedly to simplify sales tax by uniformity, the variations will ensure that the end result is not simple or uniform.
SSTA legislation can’t be interpreted without underlying knowledge of a state’s previously enacted, and unchanged, sales tax statutes. For instance, as a result of recent SSTA legislation, South Dakota now taxes postage and delivery charges in connection with the sale of retail goods. However, South Dakota has a specific, previously enacted and unrepealed exemption for receipts of a mailing service provider for the cost of postage if it is listed separately on the invoice and is a
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