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Online retailers face paying Missouri sales tax

Only retailers selling more than $100,000 worth of goods into the state would have to pay

In legislative jargon, it’s called the Wayfair fix. What it means is a change in state law that makes online retailers liable to the state for sales tax on purchases delivered into Missouri. And Thursday, House and Senate negotiators agreed on a compromise bill based on the Supreme Court’s 2018 ruling upholding South Dakota’s tax law.

The Senate voted 25-4 at 2:15 a.m. Friday to approve the bill. The House followed suit early Friday afternoon, sending it to Gov. Mike Parson on a vote of 145-6.

If signed by Parson, Missouri would be the last state with a sales tax to adopt a law capturing revenue from out of state sales. The only other state that had not done so, Florida, enacted a similar law in late April.

The major differences between the House and Senate were over provisions intended to offset the estimated $80 million to $120 million collecting the tax will add annually to the general revenue fund. The total general revenue fund is about $10 billion a year.

The House wanted an immediate income tax cut plus extensions of a currently planned cut. The Senate pushed for extending the current series of incremental cuts and to create a state version of the federal earned income tax credit.

The compromise is a mandated tax cut in 2024, after the sales tax is fully implemented, and the Senate got the Working Families Tax Credit.

It’s a good compromise because not everyone is happy with every provision, said state Rep. J. Eggleston, R-Maysville, who said the House got “a third of a loaf” out of the compromise.

Missouri Rep. J. Eggleston, R-Maysville

“I don’t think anybody is 100 percent, but everybody has something in this bill that they love and that is why it is going to pass,” Eggleston said.

Collecting the tax would also raise up to $41 million for public schools, $5 million for the Department of Conservation and $4.5 million for state parks and soil conservation.

Putting off any mandated tax cut until the revenue starts flowing from the sales tax was an important negotiating point for the Senate, said Senate Ways and Means Committee Chairman Andrew Koenig, R-Manchester.

Under current tax law, when general revenue grows by $150 million or more in a fiscal year, it triggers the next step in a five-step tax cut enacted in 2014. 

“One thing we did was make sure there would not be a triggered cut and a mandated cut in the same year,” Koenig said.

Online sales have increasingly cut into the growth of state and local sales tax revenue. State general revenue sales tax receipts grew by $88.3 million, or 4.4 percent, in fiscal 2016. The growth was down to $39.2 million, or 1.7 percent, in fiscal 2020.

The South Dakota case tested a long-standing precedent that states could impose sales tax on products sold only by businesses with physical locations within the state. That is why state sales tax law also has provisions for what is called a use tax, which is a tax of the same rate that each individual in the state is supposed to pay on purchases of goods out of state.

There is a $2,000 exemption on those purchases, so the most typical purchase subject to the use tax is a vehicle purchase from an out-of-state dealer. 

The Wayfair tax makes collecting the use tax the responsibility of the seller instead of the purchaser. Only retailers selling more than $100,000 worth of goods into the state would have to pay it, Eggleston said.

“If you’re a business and you don’t do $100,000 worth of sales into our state, then you’re not big enough that we’re going to bother you,” Eggleston said.

The state tax rate would be 4.225 percent. Local tax rates would apply for cities and counties that have or do adopt ballot measures imposing a local use tax.

The bill changes the ballot language for local use tax elections, removing a reference to the $2,000 exemption and stating that the rate will be the same as at stores in the community.

Unlike sales taxes at physical stores, which goes into the coffers of the communities where the retailer is located, the local use tax paid by out-of-state retailers will go to the community where the purchaser lives.

The House wanted every community that has already approved a use tax to vote again. Koenig said the Senate was adamant that did not happen.

“The Senate was not going to accept any version that had a revote,” Koenig said.

Under current tax law, when general revenue grows by $150 million or more in a fiscal year, it triggers the next step in a five-step tax cut enacted in 2014. The shifts in revenue collections during the current fiscal created a large increase, and the top tax rate, 5.4 percent, will fall to 5.3 percent for 2022.

But those same shifts may cause revenues to decline or stagnate during the coming fiscal year, so no tax cut is expected for 2023.

The flow of Wayfair revenue would likely have triggered a 2024 tax cut, so the result of the mandate is the same, Koenig said. The bill would add two additional 0.1 cuts when revenues hit the target. 

The Working Family Tax Credit would initially be equal to 10 percent of the federal credit. Unlike the federal credit, it is not refundable. Like the rate cut, it would double the first year after general revenues increase by $150 million.

Amy Blouin, president of the liberal Missouri Budget Project, praised the Senate passage of the bill. Enacting a state earned income credit and taxing online sales has been a lengthy process, she said in a prepared statement.

“For more than two decades, lawmakers and advocates have been fighting for a state earned income tax credit that targets tax relief to low and middle-income families,” she said. “And for the last 14 years, lawmakers and advocates have been working to collect sales taxes from online purchases just as they are at brick and mortar retail stores.”

Blouin’s group opposed the income tax cuts included in the bill.

The most important aspect of the bill is not the tinkering with revenue at the margins, Koenig said.
It is to fix a flaw in the tax system, he said.

“Literally we have one of the worst things you can have in a tax code,” Koenig said, “which is basically we are telling Missourians to go purchase from a non-Missouri business and we will give you a tax break.”

This article by Rudi Keller is published by permission of The Missouri Independent.

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