Charging a customer the right sales tax in South Dakota is now much simpler due to the state's new, GIS-based TaxMatch system. In the past, merchants and businesses in the state confronted more than 200 different tax rates and codes because municipalities can levy varied sales taxes.
Previously only private companies offered technological solutions to help businesses charge the correct sales tax based on customer location, but since January 2004, the state has offered a free service that uses the state's existing GIS system to deliver sales tax collection help online.
Users log on to the Department of Revenue and Regulation's (DRR) Web site and click the GIS icon to go to TaxMatch. By entering any South Dakota address in the TaxMatch system, users get applicable tax codes and rates for that address. DRR officials said they had no data indicating whether the agency has collected extra sales tax revenue from remote sellers as a result of TaxMatch.
The new system doesn't change who is supposed to collect sales taxes, officials said, but only makes it easier for businesses and merchants to collect the right tax. In the future, depending on whether the Streamlined Sales Tax agreement (SSTA) helps convince the federal government to allow states to collect sales taxes from out-of-state vendors, there's a strong chance extra revenue would be collected.
Unwieldy Tax System
TaxMatch was a response to standards defined in the federal Mobile Telecommunications Sourcing Act, passed by Congress in 2000 to simplify how cellular service is taxed at the state and local level by developing national, uniform rules, according to Scott Peterson, director of the DRR's business tax division.
"That was prior to the Streamlined Sales Tax Agreement," said Peterson, who is also co-chair of the Streamlined Sales Tax Project (SSTP), the organization that drafted the SSTA. "So when Streamlined came along, this standard was incorporated into the TaxMatch address database as part of the Streamlined agreement."
The SSTP involved more than four years' work by 42 states and the District of Columbia to create national standards to eliminate or reduce the costs retailers currently incur to collect state and local sales taxes.
America's sales tax system is viewed by the National Governors Association (NGA) as antiquated, complex and cumbersome to businesses in today's economy.
The problem is not only the different tax rates, but also the many different laws or definitions of what is taxable.
The NGA estimates that a simplified system could save businesses millions of dollars by removing the burden of complying with existing laws, rules and regulations in thousands of jurisdictions. Implementation of the agreement would also create a level playing field between remote sellers, who are not obligated to collect and remit sales taxes, and "main street" retailers, who must collect sales taxes.
Calculating the correct tax rate, however, can be tricky even for vendors located with the state. In the past, tax rates have often been calculated based on ZIP codes, but this can be inaccurate for rural regions where one ZIP code sometimes covers different tax jurisdictions.
AT&T was recently sued for this reason, Peterson said. AT&T used ZIP codes for calculating sales tax and collected city sales tax from people outside the tax jurisdiction. It began with two or three people who lived outside a small city in Oklahoma who were being charged city sales tax and expanded to at least 27 states, including South Dakota.
For a large enterprise, such as AT&T, a few billing inaccuracies can quickly add up.
"If you've got one customer, you can ask them where they live," said Peterson. "If you've got 7 million customers, it gets a little complicated. A solution that offers 95 or 98 percent