U.S. Senate considers Internet sales tax
Missouri loses $239 million in Internet tax revenue each year.
May. 03, 2013
A new U.S. Senate bill may require Missourians to pay more state sales tax on online purchases than they have in the past.
The Senate is considering legislation co-sponsored by Sen. Roy Blunt, R-Mo., which would require states to simplify their tax codes and collect sales tax from online retailers.
Andrew Wesemann, an MU doctoral student in the Truman School of Public Affairs, conducted research which found Missouri could lose $1.4 billion in potential taxes between 2011 and 2014. Wesemann and researchers from the MU Institute of Public Policy submitted a report to Missouri state legislators in 2012 that recommended many of the policy ideas that the Senate bill, called the Marketplace Fairness Act, includes.
Wesemann said taxing online purchases could encourage more buyers to buy locally.
"By taxing out-of-state online retailers, states may level the playing field for retailers located inside state lines," Wesemann said in a news release. "Untaxed purchases made through websites and mail order firms such as Amazon account for this large amount of uncollected sales tax."
Under current federal law, states can only tax online transactions if the business physically resides in the state. While Missourians do not pay sales tax on Amazon orders because Amazon is physically located in California, they do pay sales tax on online Walmart orders because there are Walmart stores in the state. Missouri has been losing about $259 million annually in potential sales tax revenue, Wesemann's study found.
"While historical tax revenue losses are foregone and unrecoverable, the state may certainly stand to benefit from establishing policy options and legislation which is capable of collecting future e-commerce tax revenue," Wesemann wrote in the study.
Wesemann urged Missouri to join 24 states in collecting a small amount of online sales tax through the Streamlined Sales and Use Tax Agreement. He also encouraged the state to consider legislation similar to what the U.S. Senate is now considering.
The Streamlined Sales and Use Tax Agreement encourages companies selling over the Internet and by mail order to collect taxes on sales to customers living in states that take part in the SST agreement. The agreement began in March 2000 and "is the result of the cooperative effort of 44 states, the District of Columbia, local governments and the business community to simplify sales and use tax collection and administration by retailers and states," according to the SST governing board's site.
Missourians are supposed to include uncollected e-commerce sales taxes when they file their taxes in April, but only a tiny portion of filers do so, Blunt told the Senate in March. In 2012, only about 300 Missourians paid the tax.
"I think it's wrong, frankly, to have laws on the books that we know aren't being enforced," Blunt said. "I would bet more than the collective tax (Missourians) paid that more than 300 people bought something on the Internet last year."
Sen. Claire McCaskill, D-Mo., said she also supports the Marketplace Fairness Act and voted last week to allow the bill to move to debate.
Last week, Blunt added an amendment to the bill that would extend a 1998 law that prevents any new taxes on Internet use.
"Online commerce is the way of the future and is critical to growing private sector jobs, and we shouldn’t ever do anything to inhibit online sales,” Blunt said.
Wesemann's study found that e-commerce will only increase in the years to come. Between 2001 and 2009, Internet sales increased by 9.54 percent. Missouri lost about $2.3 billion in sales tax revenue in this time span.
The legislation would exempt online businesses that sell less than $1 million worth of product and any states that do not collect sales taxes.