Sales Byte

The push for a universal online sales tax law is growing in Washington, D.C., and if the Republican-controlled Missouri legislature overrides Gov. Jay Nixon’s veto of hotly debated House Bill 253, the Show-Me State could begin imposing the tax as soon as the ink is dry on the federal legislation.

In February, a bipartisan group of 53 U.S. senators and representatives introduced a bill aiming to resolve what they termed an online sales tax loophole, arguing the system favors Internet companies over brick-and-mortar stores.

The Marketplace Fairness Act of 2013 – passed by the Senate May 6 and currently  in House committee – would allow states to require the collection of sales and use taxes already owed under state law by out-of-state businesses. Currently, many states, including Missouri, rely on consumers to remit those taxes, a method that has produced little revenue.

“If I buy a sweater from Lands’ End, which has no physical location in Missouri, I am supposed to pay a use tax as if I purchased it here,” said David Mitchell, Missouri State University associate professor of economics and director of the Missouri Bureau of Economic Research. “However, what you are supposed to do and what people actually do are two different things. Most don’t pay.”

Under chapter 144 of Missouri revised statutes, the state’s 4.225 percent sales tax “is imposed on the purchase price of tangible personal property or taxable service sold at retail, on the storage, use or consumption of tangible personal property in this state.”

HB 253 would have directed the department of revenue to enter into the Streamlined Sales and Use Tax Agreement, “to simplify and modernize sales and use tax administration in order to substantially reduce the burden of tax compliance for all sellers and for all types of commerce.”

However, Nixon vetoed the far-reaching bill June 5.” In addition to online sales tax, portions of the bill include a half-cent personal income tax reduction and address other tax code issues such as community development and transportation development tax districts and tax amnesty.

“With a price tag of $800 million, this legislation is an ill-conceived, fiscally irresponsible experiment that would hurt our economy and jeopardize funding for vital public services,” Nixon said in a June 5 news release. “Writing a bad check and saying you’ll figure out a way to pay for it later might make sense in Washington, D.C., and some other states, but it’s not how we do things in Missouri.”

Rep. Eric Burlison, R-Springfield, said the legislature aims to override Nixon during the annual veto session set to begin Sept. 11, but noted the move would be rare and historic.

“A veto override is very rare. I believe it’s only happened eight times in Missouri history,” he said. “This will be difficult, but I still believe we have a chance.”

The Missouri Chamber of Commerce and Industry supports the bill; however, local organizations such as the Springfield Area Chamber of Commerce and Springfield Public Schools have come out against the veto override, indicating portions of the bill could result in reduced funding.

According to SPS, Missouri school districts stand to lose as much as $450 million this school year with HB 253 in place, plus $260 million annually. SPS would lose about $7.5 million for the 2013-14 school year.

“SPS is opposed to the general tax reduction this bill would create,” said Kris Callen, president of the SPS Board of Education. “Our position comes from a revenue standpoint and factoring in all the aspects of this bill, the district stands to lose more than $4 million.

“I think organizations like the Springfield Chamber coming out against this bill says a lot about the impact it would have on our public entities.”

According to research by the National Conference of State Legislatures, Missouri missed out on an estimated $430.2 million in sales tax from online and catalog purchases in fiscal 2012. Nationally, that number skyrockets to $23.3 billion.

Streamlined Sales and Use Tax Agreement
If an override occurs, Missouri would join 22 other states in the Streamlined Sales Tax and Use Tax Agreement. Created by the NCSL and the National Governor’s Association in fall 1999, the agreement aims to simplify sales tax collections by creating a mechanism that makes it simpler for retailers to voluntarily pay sales taxes and for state revenue departments to collect them.

“The Streamlined Sales Tax and Use Tax Agreement gives every state a level playing field,” Burlison said. “Right now, it’s hard for retailers to figure different tax percentages and methods for each state a customer may buy from. It’s comparing apples to oranges.”

According to the Streamlined Sales Tax Governing Board Inc., sales tax administration is improved through tax law simplification, more efficient administrative procedures and emerging technologies, including software systems able to calculate various tax rates in seconds.

Burlison said if Congress passes the Marketplace Fairness Act, the Streamlined Sales Tax and Use Tax Agreement would serve as the standard guide and states that already have passed the measure could begin collecting taxes on day one.

Marketplace Fairness Act
Supported by 294 national, state and local trade associations and businesses, the MFA would challenge the 1967 U.S. Supreme Court case National Bellas Hess v. Illinois Department of Revenue and the subsequent 1992 reaffirmed decision on Quill Corp. v. North Dakota, in which the high court ruled tax collection over multiple states was messy and unfeasible.

Under the new law, mostly large retailers would be affected. According to MarketplaceFairness.org, online sellers with less than $1 million in remote sales annually would be exempt from collection requirements. Small-business owners such as Five Pound Apparel LLC owner Bryan Simpson see the move as a potential boon.

“It’s an incentive for us if it passes because all of a sudden, our products could cost less than Amazon,” he said, nothing the Springfield-based business currently tallies about 5 percent of total sales online. “If you want to buy a pair of Toms shoes online, Amazon is going to charge you tax, but we won’t.”

Professor Mitchell said while the move looks good on the surface, he believes MFA passage could trigger a cascade of cities and counties looking to collect online sales taxes. “What’s to say as soon as the states start collecting the tax, cities and counties won’t want a piece of the pie, too?” he said. “It would be an increase in taxes for the states, but I don’t think it will be as big as everyone hopes. You are taking more money out of the pocket of the consumer when they buy online, which gives them less money to spend in brick-and-mortar stores. It could be a shift, rather than a gain.”

To whit, the Greene County Commission voted Aug. 19 to place a 1.25 percent use tax on the Nov. 5 ballot for county residents who purchase items online from out-of-state retailers. The proposed use tax would apply the same rates to online purchases as Greene County’s current sales tax.

“The whole reason for taxes is to provide for local services,” Mitchell added. “If I’m shopping in Branson, I’m using their roads. Those roads need maintained, so I pay a tax. If I buy something from Branson online, should I still have to pay the tax to maintain the roads, even through I didn’t use them?”[[In-content Ad]]