Missouri seeks way to boost sales tax revenue

by Jack Stapleton Jr.

Missouri’s state and county officials have come face to face with budget deficits that have been created, in part, by sales tax exemptions that could eventually amount to as much as $500 million a year in lost revenue. While searching for other ways to enhance the state treasury through such plans as tax-penalty holidays, Missouri’s revenue officials have also been very much aware that doing away with exemptions from Internet sales would in many cases make up for potential deficits now being forecast for the next year or more.

As cyberspace sales continue to increase, the exemption of state and local taxes has increasingly become an important factor in balancing governmental budgets.

So far, 31 states, including Missouri, have enacted legislation to simplify the collection of sales taxes by businesses regardless of their location, but this will not become a reality without congressional action. States, such as Tennessee where sales tax collections represent the largest single revenue source, have been especially hard hit by the exemption, which according to one source amounted to $13.3 billion last year from Internet sales alone. The study, conducted by economists at the University of Tennessee, forecasts a tripling of revenue loss to $45.2 billion in 2006. By 2011, the study puts losses at anywhere from three to 10% of total expected tax collections.

The exemption issue became a higher priority in May when Sears announced plans to buy Lands’ End, leading to speculation about how the clothing chain will merge its old-line business with a mail-order and online company. Whatever it might mean to the business sector, the Sears-Lands’ End deal suggests that something entirely different to the 45 states and 17,500 localities that levy sales taxes, raising the possibility of splitting a pot of $90 million a year — and, potentially, hundreds of millions more. The $90 million represents roughly the amount of annual sales-tax revenue that Lands’ End currently does not collect on its $1.6 billion in sales. That’s because in 1992, the U.S. Supreme Court held that states cannot compel a company to collect taxes for them if that company has no physical presence in a state.

Lands’ End has no physical presence — no nexus — in 46 states, including Missouri. Sears, on the other hand, operates retail stores in all 50 states. Numerous fiscal experts have voiced the opinion that the Sears purchase has major ramifications for all states.

Thus far 31 states, including Missouri, have enacted legislation expressing a commitment to tax simplification and approving participation in any streamlining process. This would include a system that provides bureaucratic relief to retailers with states preserving a revenue stream that is vital to maintaining the basic level of governmental services.

The states’ goal would be congressional simplification for mail order, as well as Internet retailers, with the hope that some remedial action will occur yet this year, arguing that a nationwide system would not be an undue burden on interstate commerce with a requirement that remote sellers collect any sales levies due governmental taxing authorities on customer purchases.

[Missouri News & Editorial Services, Inc. Copyright (C) 2002 MNES Corp.]