Is Missouri missing money?

As Missouri Gov. Jay Nixon scrambles to cut millions from the budget, tax analysts believe more than $300 million in tax dollars owed the state in 2010 won’t ever be collected.

The reason? Remote sales, or those Missouri residents make outside the state via Web, catalog or telephone transactions.

Like most states, Missouri’s tax system does not specifically track and collect on remote sales taxes. Two bills in the state General Assembly are working to change that, largely due to the booming e-commerce industry.

Streamlined Sales Tax
State Senate Bill 905, called the Stream-lined Sales Tax Bill, and House Bill 2302 cover the same ground: bringing Missouri’s state and local sales taxes in line with the 23 states participating in the Streamlined Sales and Use Tax Agreement. By signing on to the agreement, Missouri would simplify its tax laws to create a uniform system for retailers to collect sales taxes for state and local governments.

Missouri Budget Project Executive Director Amy Blouin said a change is necessary if the state wishes to tap into tax dollars that already should be collected from state residents shopping online with out-of-state retailers.

“Most people just aren’t aware that there is a use tax they’re supposed to be paying,” Blouin said. “This just makes it so when you go online and buy a book over the Internet, you’re paying the same taxes you’d pay when you went to your neighborhood brick-and-mortar store.”

Companies with a physical presence in the state already collect and pay a 4.225 percent tax on remote sales. Since Missouri can’t require an out-of-state company to collect sales tax, the burden falls on the individual or company making the purchase to pay Missouri’s use tax, also a 4.225 percent charge.

“The obligation is on us to keep track of everything we haven’t paid sales tax on,” said Scott Peterson, executive director for Nashville, Tenn.-based Streamlined Sales Tax Governing Board, which serves as the central agency for the states participating in the Streamlined Sales and Use Tax Agreement. “The problem is, the use tax is only as good as the people who voluntarily remit it.”

Entering the agreement won’t change the self-reporting imposition of the use tax, but proponents say it would counteract retailers’ objections that paying taxes to multiple states is too complicated.

According to Peterson, participating in the agreement won’t require companies to collect or report sales taxes due. But if enough states participate, the board and its backers could have firepower behind a long-term goal of convincing Congress to adopt a law giving all states authority to require retailers to collect sales tax, he said.

Fear the Web
According to a study from the University of Tennessee, $344.5 million in Missouri use taxes won’t be collected in 2010. By 2012, the study projects that $430.2 million will pass by the state’s coffers as a result of uncollected remote sales.

While those estimates include all purchases subject to sales and use tax, the Internet is the venue that stands to produce the most tax dollars.

Nationwide e-commerce sales, including business-to-business such as professional services, topped $2.3 trillion in 2006, up from $995 billion in 1999, the study points out. In a separate study, eMarketer Inc. expects online retail sales to increase by an average of 10 percent each year the next three years, growing to $189.3 billion in 2013.

The only way for states to collect on 100 percent of that money, Peterson said, is to address 1992 Supreme Court rulings – Bellas Hess v. Illinois and Quill Corp. v. North Dakota – that said states cannot require a retailer that doesn’t have a physical presence in the state to collect sales tax. The problem, he said, is that interstate sales tax is too complicated.

“A retailer would have to know that one state collected taxes for A, B, C, and D, while maybe a local government only required sales tax to be paid on A, B and C,” Peterson said.

That’s where the streamlined sales and use tax project comes into play. The solution, though, is less than simple. The Streamlined Sales and Use Tax Agreement, which is 10 years in the making, outlines the steps for state use tax systems in a 170-page document.

“Just in Missouri, we have state tax rates and local tax rates. So companies had a stronger argument, before the streamlined project was developed, that online collections for sales in other states would be too difficult and too cumbersome,” Blouin said. “The project actually provides the mechanism to help retailers determine rates.”

If the Missouri bills pass, the state’s sales and use tax laws would comply with the streamlined tax agreement. State and local taxes would need to have the same exemptions and adopt specific definitions, such as “food,” “lease or rental” and “purchase price,” according to the Senate bill.

23 and counting
Already, 23 states – including Arkansas, Kansas and Kentucky – have signed the agreement. Until vendors are required to collect sales tax from other states, however, companies that sell products or services online aren’t overly concerned.

Kristin Parker, who works in the accounts receivable department at Springfield-based Everything Kitchens LLC, 1920 W. Woodland St., said the company generated $8.6 million in revenues in 2009, with the majority of business coming from Web sales. Parker said only 3 percent of that revenue came from Missouri residents, meaning the remainder of kitchen supply and appliance sales was absent of certain state sales taxes. She leaves it to the company’s software program to calculate that tax.

“If it’s a Missouri customer, it will add sales tax,” Parker said. “Otherwise, it doesn’t.”

Only about 5 percent of Stockton-based Hammons Products Co.’s business is retail, including catalog and Internet sales, President Brian Hammons said. The company also relies on software to calculate taxes, and Hammons expects an updated software package would accommodate any changes to sales tax administration.

Cart32, the e-commerce software developed by Springfield-based McMurtrey/Whitaker & Associates Inc., currently has tax engines built to the specific needs of merchants, said co-founder and president Shannon McMurtrey.

To offer merchants a more generalized tax engine, McMurtrey’s company has partnered with Avalara, a Bainbridge Island, Wash.-based tax administration software firm. Avalara is one of three tax administration software companies certified by the Streamlined Sales Tax Governing Board, according to www.streamlinedsalestax.org.

If Missouri decides to participate in the streamlined sales tax, it would have to review the software certified by the governing board to make sure it was compliant with the state’s taxes, Peterson said.

Most states can transition to compliance with the streamlined tax agreement within a year, he added. And for businesses, the goal is to make tax administration less complicated.

“For businesses that have to do business elsewhere, they have one way of doing things for 23 states, and a lot of other ways in the other states,” Peterson said.

“We need more states to join. The more that join, the less different kinds of situations businesses would have to track,” he added.

The Streamlined Sales Tax Bill, sponsored by Sen. Joan Bray, D-St. Louis County, has passed Missouri’s Ways and Means Committee. The Missouri House bill is not yet scheduled for a hearing.[[In-content Ad]]