ST LOUIS – An eye-opening report on Missouri’s multimillion-dollar losses in sales tax revenue was released Oct. 16 at a press conference held by the Faith, Justice and Truth Project, an institute focused on promoting economic justice and popular education.
According to the FJTP, an estimated $600 million annual loss in sales tax revenue is due to untaxed e-commerce sales.
“There has always been the ability for states to collect sales tax for items bought outside of the state,” said John Simpson, a representative for the FJTP. “If you think of catalogs, the state is suppose to collect sales tax when the consumer buys something out of state but [the company has] a physical presence in the state.
“For example, if I bought something out of a Sears catalog and there was a Sears store located in my state, then the state was suppose to collect sales tax on it. But if I bought something from a Sears Roebuck catalog and there was no Sears store in my state, then there was no obligation for Sears to collect sales tax. So that applied when shopping from a catalog to shopping over the phone or the internet. That was the historical way states use to collect sales tax up until 2018.”
In June 2018, the Supreme Court ruled in South Dakota v. Wayfair that states are no longer required to have an actual store in the state in order to collect sales tax.
Now, it is only necessary for the state to have an economic nexus, a connection between a taxing authority, such as a state, and a business that must collect or pay the tax.
“The nexus was set at 200 transactions or $100,000 in in-state sales,” Simpson explained. “So rather than actually having a physical store in the state, businesses just have to sell to 200 people or $100,000 in in-state sales.”
But Missouri has yet to update its sales tax laws to comply with the new decision that allows states to collect significant amounts more on sales tax.
The Rev. Billy Honor, Executive Director of the FJTP, cautioned, “Once Missouri starts collecting sales tax through an economic nexus, then there is still another loophole that retailers like Walmart are exploiting.
“Say that small business that I sell John’s widgets on is a website that doesn’t do enough sales to meet the economic threshold, so I am not going to collect the sales tax on it. But of course Walmart clearly meets the economic nexus and should be collecting that sales tax because the sale is coming from Walmart.com – but they don’t.”
The report finds that Walmart, Missouri’s largest retail collector of sales tax, is estimated to be undercollecting sales tax for in-store sales by as much as $63 million. Combined with revenue lost from not taxing sales by third-party sellers on Walmart.com, Walmart may be responsible for up to $117 million in lost sales tax revenue annually.
“If these sales were made in the actual store, they would be taxed,” Honor noted. “It is a multi-level issue, but the most important thing is that Missouri starts collecting online sales tax.”
“The report is fairly accurate,” said Adolphus Pruitt II, president of the St. Louis NAACP and guest speaker at the press conference. “Out of the 45 or more states that collect the sales tax, we are one of the ones remaining behind in this particular area.
“The reason the NAACP was prepared to speak about and participate in the conference was the fact that the state, over the years, has cut any number of social service-related programs from the budget because of budget constraints, as they would have put it. In spite of, so far, being way ahead to some degree, revenue the state collected have not restored those budget cuts in health care and some child services.
“Another big one are the cuts that were hit in the Public Defender’s office; the state pays for all the public defenders. And so it was based on that, anything that would bring additional revenue, hopefully, would help restore some of those cuts and in some cases increase the amount of money we spend in those areas, because we need them.”
“The governor did do so in this year’s budget, increase some spending in education, both in higher education and job training,” Pruitt acknowledged. “But again, when you start looking at the social service side of it, the state has not, or failed, to expand Medicaid; and in our estimation, the government has an obligation to provide in the first place.
“Unfortunately, all cuts in social services at the state level have a direct impact on minority communities,” Pruitt noted. “The primary reason why is that those services are relegated to those underserved populations that do not have the income to provide these services for themselves. So at the end of the day, the folks with the lowest socio-economic status in the state are the ones impacted the most.”
Simpson noted differences of opinion on the revenue issue.
“There are some complicated politics on what to do with the new revenue,” Simpson said. “Those on the left can see it being used for social programs, and those on the right see it as a way to lower income tax, among other things. Both have their priorities about what to do with the revenue.
“Of course, Faith Truth and Justice don’t get into whose priorities are better,” he added. “We just believe that Missouri should collect the money.”
Some Missouri legislators think e-commerce revenue is a new sales tax.
“There are a handful of senators who believe that and filibustered the bill,” Simpson said.
The proposition will go before the Legislature again in January.
“So this is really what our report shows,” Simpson explained. “The way we looked at our data, we saw how much sales tax was being collected before e-commerce really exploded, how much sales tax is being collected today, how incomes have changed and how the price of things have inflated. We think Missouri is 20 percent lower than where it should be, and that equates to about $600 million.”