OLR Research Report

September 19, 2006




By: Judith Lohman, Chief Analyst

You asked for (1) a description of the Streamlined Sales and Use Tax Agreement (SSUTA), (2) a legislative history of any Connecticut proposals about the agreement, and (3) information about laws in Rhode Island and Vermont implementing the agreement.


The SSUTA is a multistate agreement to simplify state and local sales and use tax laws and administrative procedures to encourage better and less expensive tax collection particularly on electronic and other cross- border transactions by remote sellers. The agreement text was ratified by 30 states in November 2000. It took effect on October 3, 2005, after adoption by at least 10 states with at least 20% of the national population as the agreement requires.

The SSUTA requires member states to, among other things, adopt uniform definitions for taxable and exempt products and services, simplify tax rates by limiting themselves generally to one sales tax rate for all taxable products and services, administer both state and local sales and use taxes at the state level, and adopt uniform rules for sourcing transactions based on where items or services are delivered or used. It also establishes three types of certified technology systems for sellers to use to collect and remit sales taxes to all jurisdictions. Finally, the agreement establishes a multistate organization and mechanisms to administer the agreement and settle tax disputes.

Of the 45 states with sales taxes, 21 have already adopted the legislation needed to comply with the agreement and have or will become SSUTA members. Another 22 states have adopted legislation that allows them to conclude multistate tax agreements to implement the SSTUA's goals. The latter states have not applied for formal membership and have not changed their state laws to comply with the agreement.

Connecticut has not taken either of these steps. Proposed bills requiring the state to adopt the agreement were introduced in the 2003 and 2005 legislative sessions. Both died in the Finance, Revenue and Bonding Committee without a hearing. The Department of Revenue Services (DRS) submitted a report on the SSTUA on February 20, 2004 that concluded that extensive changes in sales and use tax laws and procedures would be needed before Connecticut could become an SSUTA member.

Rhode Island and Vermont enacted legislation authorizing their states to start the process of participating in the SSUTA in 2001 and 2003, respectively. In 2006, both states passed the changes in their sales and use tax laws needed to comply with the agreement and applied for SSUTA membership. They are currently awaiting SSUTA compliance certification. Rhode Island's 2006 SSUTA compliance legislation was much more extensive than Vermont's. Vermont needed only small, rather technical changes to its state laws to comply. Rhode Island not only revamped many of its statutory definitions, but also enacted the entire SSUTA into its General Laws.


The Streamlined Sales and Use Tax Project is an effort by state and local governments to simplify and modernize sales and use tax collection and administration to promote compliance by, and reduce costs for, local and remote sellers of all types of goods and services. One of its major goals is to improve tax collection on cross-border sales occurring through electronic and other types of remote commerce, thereby stemming loss of state and local tax revenue from e-commerce and mail-order sales.

Project History

The project was organized in March 2000 to promote simpler sales and use tax laws and administration; use of technology for collecting, reporting, and remitting taxes; and state assumption of remote sellers' costs for collecting sales tax. To further these goals, representatives of state tax administrators, legislatures, and governors; local governments; and private businesses, including national retailers, trade associations, and telecommunications and technology companies, developed the Streamlined Sales and Use Tax Agreement (SSUTA). The agreement was ratified on November 12, 2002 by 30 states and the District of Columbia. Adoption and use of the agreement is voluntary for both states and remote sellers.

Major Requirements of the Agreement

The SSUTA requires member states to change their state laws to adopt the following key features:

Uniform definitions. Although state legislatures can still determine what is taxable or exempt, member states must agree to use uniform definitions for taxable and exempt items and services and other key tax terms and not to deviate from these definitions. Thus, all member states must define such things as “food” and “clothing” in the same way.

Simpler rates and uniform thresholds and caps. Member states are generally allowed one tax rate for all taxable items or services, although a second state rate is allowed for food and drugs. Each local taxing jurisdiction is allowed only one rate. Thus, for example, under SSUTA Connecticut could not maintain its 6% tax rate on most items but have a 12% rate on hotel rooms and a 1% rate on computer and data processing services. Connecticut might also have to modify its tax thresholds of $50 for taxable clothing, $2,500 for burial and cremation services and caskets, and 50 for vending machine items, for example.

● State-level administration of all local sales and use taxes. Businesses would not have to file separate returns with each local taxing authority within a state. States must administer all sales taxes and distribute tax revenue to local taxing jurisdictions. States and local jurisdictions within them must use common sales tax bases. The agreement also requires states to provide for central seller registration, uniform returns and remittances, and simplified administration of exemptions.

● Uniform sourcing rules. Member states must have simple delivery- or destination-based sourcing rules to allow vendors to determine which state or local taxing authority governs a particular transaction.

Tax Collection Technology

The SSUTA allows sellers to use any of three technology systems to collect taxes for member states. Model 1 allows a seller to use a certified service provider, paid by member states, to perform all of its sales tax functions. Model 2 allows a seller to use a certified automated system to calculate the appropriate tax for each transaction, while continuing to file returns and remit taxes itself. Model 3 allows large nationwide sellers that have developed their own proprietary sales tax software to continue using it after having it certified by the member states.

State Implementation

State legislation is needed before a state may implement the agreement. The SSUTA contemplates states acting in two phases. First, a state adopts legislation to allow it to enter into agreements with one or more other states to simplify and modernize sales and use tax administration. Adopting this legislation does not require the state to amend its sales and use tax laws. Second, states amend their sales and use tax laws to achieve the simplifications and uniformity required of member states. This step is considered to be “adopting” the SSUTA.

The SSUTA became effective on October 3, 2005 after it was adopted by at least 10 states comprising at least 20% of the U.S. population, as determined by the 2000 Census. That date marked the start of (1) a web-based, centralized sales tax registration system for the member states and (2) an amnesty period for uncollected or unpaid sales or use taxes if sellers register to collect and remit taxes on sales to purchasers in member states. Also on that date, the SSUTA process for certifying sales tax collection software became final.

According to the National Conference of State Legislatures, as of September 6, 2006, 21 states (referred to as member and associate member states) had enacted legislation to bring their laws into compliance with the agreement. Another 22 states (referred to as implementing states) have adopted laws to allow them to negotiate multistate tax agreements, but have not yet changed their underlying sales and use tax laws to comply with the SSUTA. The states in each category are shown in Table 1 below.

Table 1: States and the Streamlined Sales and Use Tax System

Member States - Full Compliance as of October 1, 2005


New Jersey


North Carolina


North Dakota




South Dakota


West Virginia



Associate Member States – Full Compliance As of 1/1/08







Compliance Legislation Enacted in 2006 – Awaiting Certification

Rhode Island


Implementing States







District of Columbia

New Mexico


New York




South Carolina









Source: National Conference of State Legislatures


Although Connecticut participated in meetings that led to ratification of the SSUTA, it has taken no action to join or implement it. Since 2000, two proposed bills have been introduced on the agreement. Proposed Bill 328 of the 2003 session would have required the state to endorse the agreement. Proposed Bill 5365 of the 2005 session would have required the state to join the agreement and enact necessary legislation to implement the program. Both bills were referred to the Finance, Revenue and Bonding Committee, which took no action on either.

On February 20, 2004, the Department of Revenue Services submitted a report to the General Assembly that enumerated the changes in the state sales tax law and practice that would be required to implement the agreement in Connecticut. The DRS report showed that extensive changes in state law would be needed. (This report is not online but is available in the Legislative Library.)

The key areas in the SSUTA that would require changes in Connecticut law, according to DRS, are those dealing with:

● Food and other product and service definitions

● Single rates for all taxable items and services

● Exemption administration

● Audits

● State compensation to vendors for collecting sales taxes

● Caps and thresholds for taxable items


Rhode Island

Rhode Island adopted legislation in 2001 to allow the state to become an active participant in the Streamlined Sales Tax Project (2001/ HB 6494 (Act 172)). The state legislature enacted extensive changes to its sales and use tax to comply with the agreement on June 30, 2006 as part of a larger tax bill (2006/H 7120, Art. 30 (Ch. 246), 9-13). Among other things, Rhode Island adopted changes in the following parts of its sales tax law:

● Definitions, including the definitions of person, sale and retail sale, sale price, food products and other exempt items, and telecommunications and other services

● Sales tax holidays

● Taxable items

● Filing returns

In addition, the 2006 law incorporates the entire SSUTA by reference into the General Laws of Rhode Island, and enacts the full text of articles III, IV, and VI. It covers:

State-level tax administration

State and local tax bases

Seller registration

Notice for state tax changes

Local rate and boundary changes

Relief from certain liability for having charged or collected incorrect amounts

Database requirements and exceptions

Limits on the number of state and local tax rates

General sourcing rules and exclusions

Special sourcing rules for items with multiple points of use, direct mail, and telecommunications

Enactment and administration of exemptions

Uniform tax returns

Uniform rules for remitting funds and recovering bad debts

Confidentiality and privacy protections

Sales tax holidays

Tax caps and thresholds

Rounding rules

Customer refund procedures

Direct pay permits

Use of SSUTA's library of definitions

Requirement to provide a taxability matrix to the SSUTA's governing board

Effective dates for rate changes

Definition for “bundled transactions”

Online registration system for sellers

Registration amnesty

Tax remittance methods

State monetary allowances for sellers

Agent registration

Rhode Island's SSUTA tax changes take effect on January 1, 2007.


Vermont authorized the state to participate in the agreement in 2003 as part of a larger education funding bill (2003/HB 480 (Act 68), 30). In 2006, the Vermont legislature enacted two acts, one to conform the definition of “sales price” in Vermont's law to the SSUTA (2006/H 706 (Act 94), 9) and the other to conform sales tax registration requirements to the agreement (2005/H 843 (Act 207), 5). It appears that Vermont's sales tax law did not require extensive revisions to comply with the agreement, since these acts made only minor changes.