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The Twix Dilemma:
The Quest for a Streamlined Sales Tax

Have you ever noticed that when you make online purchases, some companies charge sales tax while others do not? Have you ever bought something online in order to avoid paying the California sales tax at your local store? Some states and businesses would like to change that.

Under current law, out-of-state vendors cannot be required to collect sales tax unless they have a physical presence (a store, office, etc.) in the purchaser’s state. In a 1992 decision, the U.S. Supreme Court ruled that requiring all out-of-state vendors to collect the tax would unduly burden interstate commerce. With the growth of e-commerce, state governments have become increasingly concerned about the loss of sales and use taxes on their residents’ out-of-state purchases. Main Street businesses, which are required to collect sales tax, are also clamoring for a level playing field with their online competitors.

The complexities of current sales tax laws are mind-boggling. There are more than 7,500 taxing jurisdictions in the United States. Many of these jurisdictions have different tax rates. Many also have different tax bases, which means that definitions of what goods and services are taxed vary across jurisdictions.

The Streamlined Sales Tax Project (SSTP) is a national effort to simplify, standardize and modernize the sales tax system. In November 2002, the Streamlined Sales and Use Tax Agreement was approved by 30 states and the District of Columbia. California has been fairly slow to become involved; the state became an active voting participant in the SSTP effort in January 2004. The next step is for California to decide whether to conform its sales and use tax laws to those of the Agreement. Preliminary analysis by the California State Board of Equalization indicates that conforming to the Agreement would require a major overhaul of the state’s sales and use tax system and would mean that California would loose some “sovereignty” with respect to making its own sales tax policy. Taxes collected on sales throughout the state would be affected, not just taxes on sales made over the Internet.

One goal of the Streamlined Sales Tax Project and its Agreement (SSUTA) is to provide states with a sales tax system that includes uniform definitions within the sales and use tax laws. State legislatures can decide what to tax and what not to tax, but they have to follow SSUTA definitions. Are marshmallows candy or food? Is orange juice a soft drink or a fruit juice? Is a Twix bar a candy or a cookie? According to the SSUTA definitions, for example, a Twix bar is a cookie because it uses flour as an ingredient.

Defining food items for taxation purposes can be tricky. Californians may remember the outcry when the ‘Snack Tax’ was implemented in the early 1990s. If you bought potato chips at the convenience store in a small packet, they were taxed. If purchased at the grocery store in a larger bag, they were not taxed. It was confusing, irritating, and resulted in the passage of Proposition 163 in 1992, which froze the previous statutory definition of ‘food’ for sales tax purposes into the California Constitution.

In The Streamlined Sales and Use Tax Agreement: A California Perspective (CRB-05-001, February 2005), Martha Jones, Ph.D., a Senior Economist in the California State Library’s California Research Bureau, analyzes the impacts of joining the Agreement on the California sales and use tax system. The report also analyzes state revenue losses due to the inability to enforce use tax collection on remote sales (mail catalog and electronic sales). Advocates for the streamlining process argue that use tax compliance would improve if all states were to comply with the SSUTA. Opponents argue that estimates of revenue losses due to remote sales are too high and that online commerce should not be taxed.

The Streamlined Sales and Use Tax Agreement is available at

To view other California Research Bureau reports please visit:





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