Michigan recently enacted Streamlined Sales and Use Tax legislation that will substantively change sales and use tax collection processes.

One of the primary purposes of the Streamlined Project is to encourage the voluntary collection and remittance of taxes by out of state vendors. Currently, many out of state vendors who make considerable sales into a particular state lack sufficient contacts (nexus) to be required to collect taxes on those sales.

For example, a California Retailer does not have any stores or other physical presence in Michigan. However, the California Retailer maintains a web site and mail order operation which results in a substantial number of sales being made to Michigan residents. Unlike local retailers who charge and collect sales tax, the California Retailer is not required to collect Michigan taxes.

With the growth of internet and mail order commerce, significant concern has arisen over the inability of states to mandate collection of their taxes from remote vendors. Many believe that not requiring out of state vendors to collect tax is unfair in that it disadvantages "brick and mortar" businesses located within the state who must collect tax. As this growth trend continues, there is also concern about the fiscal consequence on state budgets due to the uncollected taxes associated with out of state sellers. Recent estimates indicate that in Michigan approximately $265 million in revenues are lost annually to unpaid use taxes attributable to remote sales.

Efforts advancing federal legislation that would mandate collection of state taxes by remote sellers have been met with resistance. A major concern expressed by the business community and the United States Supreme Court is the extreme compliance burden that a mandatory collection requirement would impose. (See Quill v North Dakota, 504 U.S. 298 (1992) and National Bellas Hess v Department of Revenue of Ill., 386 U.S. 753 (1967)) In addition to the 45 states that impose sales and use taxes, many of those states also authorize their local jurisdictions (counties, cities, etc.) to enact and impose sales and use taxes. Presently, there are over 7000 jurisdictions imposing sales and use taxes. The taxes imposed by these jurisdictions vary as to:

• the rate charged;
• definitions used to determine what is taxed and what is exempt (tax base);
• tax administration, including such things as due dates, what governmental entity the tax return is sent to, manner of making remittance, and manner of claiming exemptions;
• audit procedures;
• manner of determining where a sale takes place (sourcing).

To further complicate matters, in some instances local taxing jurisdictions do not coincide with political or geographical boundaries.

For example, a sale made on the north side of Easy Street in Y county in State X is subject to the state sales tax, the county sales tax, and a special transportation district sales tax. A sale made on the south side of Easy Street, while in the same county and state, is located outside of the special transportation district and is, therefore, not subject to the special transportation tax. Accordingly, a different aggregate rate applies depending on which side of the street the sale is made.

Often, tax statutes that utilize the same terms and look the same on their face are in fact very different.

For example, State 1 and State 2 both exempt "food" and tax "candy". State 1 defines candy to include cookies coated with chocolate (Twix bar) and imposes tax on those cookies. State 2 does not consider cookies coated with chocolate to be candy and exempts them as food.

Some states may even treat chocolate covered cookies (Twix bar) differently than cookies that have stripes of chocolate.