The Streamlined Sales and Use Tax Agreement (SSUTA) is a multi-state cooperative agreement intended to simplify the administration of state sales tax systems and encourage remote sellers to collect and remit sales and use taxes. Since 2003, 24 states have enacted SSUTA-conforming laws. Kansas was the first state with effective conforming legislation.
The SSUTA was an outgrowth of the Streamlined Sales Tax Project, created in 1999 in response to questions over states’ right to collect sales taxes from remote sellers (out-of state and/or internet retailers). With the growth of internet sales, states were seeking to combat revenue losses resulting from the shifting sales tax base and ensure equity between remote retailers and brick-and-mortar stores.
In 1967, the U.S. Supreme Court ruled in National Bellas Hess, Inc. v. Illinois1 that collection of sales tax required a retailer to have physical contact with the state. Later, in the 1992 Quill Corp. v. North Dakota2 ruling, the Court held that remote sellers, though liable for state sales taxes, could not be required to collect taxes where the seller lacks sufficient physical presence, as requiring compliance with multiple state sales tax systems imposes an undue burden on interstate commerce in violation of the Commerce Clause.
The SSUTA is an attempt in part to remove this burden by creating a streamlined and simplified tax system in which states and retailers could voluntarily participate.
SB 472 (2002) and HB 2005 (2003) enacted provisions bringing Kansas into conformity with the SSUTA (See KSA 79-3666 through KSA 79-3682).
The Bellas Hess and Quill rulings were overturned by the Supreme Court in 2018 with its South Dakota v. Wayfair, Inc.3 ruling that remote sellers can be required to collect sales tax if they have “sufficient economic nexus” in the state. South Dakota’s participation in the SSUTA was one of the reasons given by the Court as evidence the South Dakota law did not violate the Commerce Clause.
Following the Wayfair decision, in 2019, Kansas began requiring registration of remote sellers. Prior to 2021, Kansas was one of three states without a provision requiring marketplace facilitators (entities facilitating internet sales through a physical or digital marketplace) to collect and remit sales tax. With enactment of 2021 SB 50, marketplace facilitators with more than $100,000 of annual sales sourced into Kansas were required to collect and remit sales taxes.
Streamlined Conformity Requirements
To provide a simplified tax system, the SSUTA requires member states to agree to certain rules in the administration of their sales and use taxes. These requirements include, among other things, rules related to sourcing of taxable sales, uniform definitions, and the retention of certain proceeds by certified service providers.
The SSUTA generally requires member states to adopt statutes requiring destination sourcing for sales tax purposes. This requirement means that for taxable sales where the purchased product or service is not received by the purchaser at the business location of the seller, the tax will be applied and collected as if the sale occurs where the product or service is received by the purchaser.
The SSUTA includes a library of definitions and generally requires that, if a member state uses a term appearing in the library of definitions within its sales and use tax statutes, it must use the definition of that term provided for by the SSUTA library of definitions. This provision does not require a state to use all terms in the library of definitions, but does require uniformity in the definition of those terms if they are used.
Certified Service Providers
To reduce compliance burdens on remote sellers, SSUTA states must require Certified Service Providers (CSPs) to perform sales and use tax functions on behalf of sellers. Member states are generally required to allow CSPs to retain 5 percent of the first $500,000 of tax owed to the state and 2 percent of all additional tax owed to the state each year. In 2021, CSPs retained $2.0 million of sales and use tax that otherwise would have been due to the state of Kansas.
- National Bellas Hess, Inc. v. Department of Revenue of Ill., 87 S.Ct. 1389 (1967). ↩︎
- Quill Corp. v. North Dakota, 112 S.Ct. 1904 (1992). ↩︎
- South Dakota v. Wayfair, Inc., 138 S.Ct. 2080 (2018). ↩︎
by Eric Adell