State governments are currently facing huge budget deficits. In fact, only two states – Montana and North Dakota – dot not have budget shortfalls. As a result, many states are looking for any way they can to boost revenue.

Rather than resort to unpopular tax increases, they are instead focusing on stricter enforcement of existing tax laws. One popular target for cash-starved states is sales tax.

The Main Street Fairness Act currently making its way through Congress (as of this writing the bill has not left committee) is clear evidence of the states’ interest in bolstering sales tax revenue. If passed, the act would require sellers to collect sales tax from out-of-state purchasers regardless of whether the seller has a physical presence in the buyer’s state.

Essentially, the goal of The Main Street Fairness Act is to overturn the landmark Bellas Hess and Quill v. North Dakota Supreme Court decisions. These decisions ruled that it was unconstitutional to require vendors to collect sales tax from buyers in other states if the buyer doesn’t have physical presence there. The idea of sales tax nexus was born from these decisions.

The nexus doctrine gives vendors that sell products via the internet and catalogs an unfair advantage over brick-and-mortar suppliers. If an online vendor does not have nexus in a buyer’s state, then the transaction is not charged sales tax. While the buyer is still required to pay use tax to their home state, it is difficult to enforce.

According to information published by the International Council of Shopping Centers, states are collectively losing between $21.5 billion and $33.7 billion from uncollected sales tax.

The Streamlined Sales Tax Project was established in 2000 in response to this challenge. Member states agree to collect sales tax on behalf of other member states, regardless of whether the supplier has nexus. While 41 states have signed the SSTP agreement, just 23 of them are full members.

Under the SSTP, collecting sales tax for member states is not a legal requirement. The Main Street Fairness Act would require all sellers to collect sales tax from buyers in states that are part of the SSTP. Lawmakers want to give the SSTP some teeth.

Reactions to the proposed act have generally been positive. For instance, in a recent roundtable discussion hosted by Sales Tax Buzz, R. Bruce Johnson, a lawyer and CPA with the Utah State Tax Commission, said:

“Sales tax compliance is difficult, confusing and expensive for multistate retailers. The Act would require states to stay in compliance with SST Agreement, including uniform definitions, simplified procedures, and technological tools, if they wanted collection authority. Without that incentive, states might go back to “business as usual.”

However, many organizations have reservations about the Main Street Fairness Act. Online retailers that currently rely on their customers to pay use tax believe the cost of keeping up to date with out-of-state tax data will be too much for many of them to afford. They instead want states to step up use tax enforcement.

“It will be a problem,” says Barbara Weltman, author of J.K. Lasser's Small Business Taxes in an article published by Auctionbytes.com. “The reason it is so troubling has to do with the fact that there are 8,500 local sales tax jurisdictions in this country. It's difficult for companies to comply with all the rules.”

Sales and use tax compliance is one of the toughest challenges accounts payable departments face. The Main Street Fairness Act might make that job a little easier as it would all but eliminate the need for use taxes. It’s important not to overlook the impact the law would have on small multistate vendors who may not be able to afford to keep track of each district’s sales tax rules. Unless states find another way to bolster their cash reserves, it’s looking more likely that the act will become law.