It Is Time to Change How We Collect Sales Taxes in Missouri
Comprehensive online sales tax collections in Missouri are likely inevitable. Because of the ongoing pandemic, they are also necessary. Covid and its effects on our lifestyle and economy have accelerated existing trends toward more online shopping. To fund the necessary functions of state and local government, it is important that sales and use taxes are collected as part of online sales in Missouri.
But we should not simply mandate an online expansion of the existing sales tax system. The current system has many problems and has been poorly implemented by the heavily fragmented local government in Missouri. For decades, our current sales tax system has incentivized corporate welfare and tax giveaways, unduly benefitted a few cities with large shopping centers, motivated many cities to export fiscal costs onto shoppers instead of residents, and enticed higher rates due to the political expediency of sales taxes over other forms of taxation.
In case you were wondering, none of that is a good thing. In my personal opinion, property taxation (especially land taxation) should be the primary method of funding local public agencies, complemented by sales taxation and direct fees for services. When people pay for the services they use, they want to make sure they are getting value for their tax dollars. When the cost of funding a city is paid for by shoppers from other areas, it becomes easy to constantly increase the rate to fund whatever the city wants, whether it is truly needed or not. After all, the voters aren’t paying for it—those other people are. If you are looking for evidence of this, think of all the Taj Mahal-like municipal recreation centers that have been built in Missouri over the past 15 years.
As part of a substantial expansion of the sales tax base with online collections, we should lower the rate to benefit residents. That rate reduction can be a general one or specific to certain, special taxes. I have one to propose first. If we collect online sales taxes, then the extra sales taxes added (on top of all the regular sales taxes) for sit-down meals at restaurants in St. Louis and Kansas City should be eliminated. We all want to help restaurants recover from the dire circumstances of the pandemic, so let’s remove that extra tax they pay that puts them at a price disadvantage against other types of food sales.
I make no claim to having all the answers here. Our myriad of sales tax exemptions, the alphabet soup of special taxing districts, and various distribution formulas make it all very complicated. But if we are going to expand the sales tax system to include all online sales, we need to rearrange that system in Missouri to fund our local governments while removing the harmful parts of the system we have seen much of in recent decades. More questions, comments, and suggestions on this topic to come soon.