A U.S. Supreme Court decision issued last Thursday seems much longer ago after a flurry of 5-4 rulings in favor of the conservative wing and the announced retirement on Wednesday of Justice Anthony Kennedy. Last Thursday’s ruling was also 5-4 but different in that it featured a conservative justice, John Roberts, and a liberal justice, Ruth Bader Ginsberg, switching sides from their ideological groups. For Missourians, it means Internet sales can be subject to state and local taxes.
The ruling does away with a more than 25-year-old law prohibiting such taxes from interstate purchases unless the seller has a physical presence in a state, like a warehouse or an office. The 1992 statute that’s been reversed primarily addressed mail order sales and was issued several years before Amazon (1994) and E-Bay (1995) were founded. Predictions of increased revenues are big.
As reported by Bloomberg, the Government Accountability Office estimates that state and local governments could have collected up to $13 billion more in 2017 had they been allowed to require sales tax payments from online sellers. Ray McCarty, President, and CEO of Associated Industries of Missouri is skeptical the numbers are actually that high.
“I have no idea where they’re coming up with those numbers. because frankly, they don’t know, we don’t know what percentage of sales in Missouri are going untaxed,” said McCarty.
Amazon currently collects on some taxes from online sales. Interstate transactions that travel from seller to buyer through Amazon in its function as an aggregator are already taxed.
McCarty believes the next biggest sources of internet purchases in Missouri would be Walmart and Best Buy. Both of those retailers were already collecting state and local taxes under the old law because they have a physical presence in the state in the form of multiple brick and mortar stores.
The Supreme Court in the latest case, South Dakota v. Wayfair (the home goods online retailer), decided in favor of the state’s attempt to impose sales taxes partly because it provided an exemption for the smallest of online merchants.
According to McCarty, Missouri had a similar provision in place that was removed in 2013 because the matter wasn’t being enforced. He thinks the state Legislature could easily reinstate the exemption to comply with South Dakota’s provision which would be required under the Supreme Court ruling.
Overall, McCarty believes state and local taxes could start being collected in Missouri any time now that the Supreme Court has spoken.
“Our law is already set up to force collection as long as the Supreme Court allows it,” McCarty said. “Now that the Supreme Court allows it, we believe that there really isn’t any further action that the Legislature needs to take to start collecting the tax right away.”
Associated Industries of Missouri, McCarty’s organization, is a longtime advocate for businesses and manufacturers in the state.
Although it’s a vigorous supporter of the recent Supreme Court decision, McCarty notes state and local taxes are already required in purchases totaling more than $2,000 from each online retailer. But the law is essentially inoperable because it’s prohibitively expensive to enforce and most consumers don’t even know it exists and are highly unlikely to voluntarily pay the taxes.
Joining Associated Industries in applauding the Supreme Court decision is an organization often on the opposite side of policy issues in the state, the Missouri Budget Project.
Like Associated Industries, the Budget Project is a non-profit group. It campaigns for public policies it perceives to advance the interests of citizens with an eye toward low-income people and families.
The Budget Project relies on a couple of studies to illustrate losses the state has experienced as a result of the 1992 Supreme Court decision, Quill Corp. v. North Dakota.
In 2012, analysts at the University of Missouri Truman School of Public Affairs estimated that Missouri lost an average of $358 million annually in state and local sales and use tax revenue. A more recent analysis conducted by the United States Government Accountability Office found Missouri misses out on between $180 – $275 million annually in state and local sales tax.
Tracy Gleason with the Missouri Budget Project thinks the state needs to use the revenue it can recover to restore services lawmakers have cut in recent years due to budget shortfalls.
“Things like the prescription drug assistance, home and community-based services for seniors and people with disabilities, higher education,” said Gleason. “We just need to make sure that we put everything in place to make sure that Missouri can benefit from the Supreme Court’s decision.”
The Budget Project is typically critical of tax cuts championed by Republican state lawmakers but concedes individual and corporate income tax reduction passed this year is revenue neutral.
The individual rate is sliced from 5.9% to 5.5% beginning next year while the corporate rate slides from 6.25% to 4%. So far, the corporate cut has been signed into law by former Republican Governor Eric Greitens while the individual reduction awaits the consideration of current GOP Governor Mike Parson.
The Budget Project has more concerns about a tax cut approved in 2014, which is embraced by the individual tax reduction legislation just passed in May. It drops the individual rate one-tenth of a percentage point if state revenues increase by $150 million in the previous year. Under the 2014 law, the individual rate could drop as low as 5.1%.
Gleason thinks the state will be better positioned to absorb revenue losses, whether through tax cuts or tax collection shortfalls, if the state proceeds to impose taxes on internet sales based on the recent Supreme Court decision.
Meanwhile, the state Department of Revenue has taken a cautious approach on how it’ll move to impose the tax on online sales.
“There will be a prolonged period of uncertainty as the US Congress and individual states assess next steps and take a range of potential actions,” said Missouri Department of Revenue Director Joel Walters. “This creates opportunities for Missouri, as it does other states, to consider legislative and administrative action in a very different tax policy world.”
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