An internet sales tax might be instituted by law or regulation in Mississippi, likely opening the state to lawsuits seeking to overturn it.
While a bill in the Mississippi House would authorize the Department of Revenue to force online retailers to collect sales tax on purchases by Mississippians, an administrative rule proposed by the DOR could do the same thing without legislative action.
Both the bill and the rule would require all firms — even those without a physical presence in the state — with annual online sales of $250,000 to charge customers the state’s 7 percent sales tax. Right now, taxpayers are supposed to pay a 7 percent “consumer use tax” individually on all purchases from out of state firms.
“The only way this is possibly a good idea is if we (the Legislature) believe we can spend the money better than our constituents, the people of Mississippi,” Bomgar said during debate on the House floor. “You would never take money out of their pockets unless you believe we’re smarter and better at spending their own money than they are.”
Proponents, such as state Rep. Trey Lamar, R-Senatobia, say taxpayers in Mississippi are legally bound to pay what is known as a “consumer use tax” on all purchases made out of state. Taxpayers are supposed to pay this tax annually when filing their annual state income tax forms.
Compared to sales tax receipts, few taxpayers add any amount to that box. In fiscal 2016, the state collected more than $3 billion in sales tax revenue while collecting a bit more than $310 million in use tax. While use-tax collections in fiscal years 2016 and 2015 were at a 10-year high, the tax slice of the state’s general fund revenue pie has remained static at around 4 to 5 percent annually, according to data from the DOR.
According to data from the U.S. Census Bureau, online retail sales in the U.S. have increased from 2.5 percent of all sales in 2006 to 7.7 percent in the most recent report for the third quarter of 2016.
“Some people have said this is bad politics. Some people say that this is a tax increase,” Lamar said. “Any argument that says that you shouldn’t pay a tax that the law says you have to pay is an advice — there’s a word for it — to commit criminal tax evasion.”
Russell Latino, an attorney and the state director for pro-economic freedom group Americans for Prosperity, says passing an internet sales tax would open the state to lawsuits.
“It is an unfortunate and unconstitutional self-inflicted wound that will cost Mississippi taxpayers and Mississippi businesses real money,” Latino said.
Both Alabama and North Dakota are being sued by retailers over their internet sales taxes. According to the 1992 U.S. Supreme Court decision Quill Corp. v. North Dakota, retailers are required to have a physical presence in a state before it can levy sales taxes on them.
The Quill standard could be in jeopardy. Supreme Court Justice Anthony Kennedy wrote in a 2015 case, Direct Marketing Association v. Brohl, that the court might need to revisit the Quill decision. But for now, it is the law of the land.
Nicole Kaeding, an economist with the Tax Foundation’s Center for State Tax Policy, said the issue needs to be addressed by the U.S. Congress because it’s one that concerns interstate commerce. She also says the lawsuits in Alabama and North Dakota present an attempt to get the court to reexamine the Quill decision.
“Internet sales tax is misportrayed as being a new tax,” Kaeding said. “It’s not a new tax. This issue has to do with collections and complexity. It’s making the collection process easier because no one ever files their use tax. In my view, this is an area for Congress to regulate and Congress to pass guidance.
“Otherwise, we have a ton of complexity with every state with overlapping jurisdictions and rules and this becomes a mess. This really is the one place where Congress is supposed to act, when things burden interstate commerce,” she said.
No matter what happens with the House bill or the DOR rule, Mississippi will gain some more tax revenue from at least one online retailer.
Amazon and the state reached an agreement for the online retail giant to begin collecting and remitting sales tax on purchases made by Mississippians. The retailer began collecting sales tax on Wednesday for Mississippi and has reached similar deals with Iowa, Louisiana, Missouri, Nebraska, Rhode Island, South Dakota, Vermont and Wyoming in the past year.