Last year Show-Me Institute writers discussed the possibility of Missouri imposing a new tax for online purchases, but there was no action taken on the issue during the 2019 legislative session. However, it’s likely the “Internet sales tax” discussion will come up in the 2020 legislative session, so this is what you should know about the issue.
In the June 2018 South Dakota vs Wayfair decision, the U.S. Supreme Court overturned what was essentially a “physical presence” rule for requiring a seller to collect a sales tax in the United States. That means states can now impose a sales tax collection responsibility on internet retailers even if they don’t have property or employees in the state.
Some assume large companies will be most affected by this change, but many big companies have a physical presence in the states they do business, so they already collect and remit sales taxes. For example, Amazon has a warehouse in Missouri and collects taxes on its sales in the state accordingly. This means that those likely to be most affected by a new collection responsibility are smaller Internet retailers based outside of Missouri.
In the Wayfair majority opinion, Justice Kennedy claimed the physical presence rule “has prevented market participants from competing on an even playing field.” This may be true, but policymakers should consider how a tax increase could affect Missourians. Internet sales taxes aren’t paid by retailers; they’ll be paid by Missouri taxpayers. The costs of “evening the playing field” through tax policy have to be paid by someone, and it’s almost always consumers that have to pick up the bill. This could add to an already-high sales tax burden for Missourians.
A bill introduced last year that would have implemented an Internet sales tax made some progress in the legislature, but the legislative session ended before any real action could be taken. It’s a good bet that this issue will come up again in 2020. Missourians interested in tax policy should monitor the debate closely, as a new law implementing an Internet sales tax could have big ramifications for our state.