Salter: Technology, need may fuel online sales tax collection

Published 12:00 am Tuesday, June 7, 2016

Salter: Technology, need may  fuel online sales tax collection   

Sid Salter


Sign up for our daily email newsletter

Get the latest news sent to your inbox

STARKVILLE – Few residents in Mississippi have escaped the reality that state government sales tax revenues are declining as more and more paying customers shop online – in part for convenience, yes, but in large part because it allows that customers to avoid paying the same sales tax collected from shoppers by the bricks-and-mortar retail stores in the town where those customers live.

The migration from physical points of sale in retail stores to online transactions is expected to increase steadily along with the corresponding declines in sales tax collections.

After several months of poor performance in revenue collections against the state’s revenue estimate, the May collections were actually up $4.3 million or .96 percent over the official estimate. That compares with April numbers, when collections were $85 million below the revenue estimate.

The state has twice cut budgets from the 2015 appropriations, with reductions of $65 million in a $6.2 billion (state portion) state budget. That included Gov. Phil Bryant’s statutory use of $35 million from the state’s “rainy day fund” to avoid additional cuts.

Whenever I write about this issue – and I’ve written about it a great deal over the last 15 years – I hear the predictable caterwauling from those who oppose full collection of Mississippi’s seven percent sales tax including online sales.

The usual anti-online sales tax collection claptrap goes like this: Collecting online sales taxes is a “new tax.” Not true. Collecting online sales taxes will impede a shaky economic recovery. Not true. Nationally, streamlined state sales tax collection is “too hard” and “technically impossible.” Not true. And collecting online sales taxes is a “tax increase.” Big time not true.

My favorite mindless platitude – one based totally in a desire to avoid full collection of an existing tax – is this: “The Internet has flourished primarily because of limited government involvement. Let us leave well enough alone. The market will sort this out in good time.” 

What the market is sorting out is that traditional sales tax collections are declining as online sales increase, giving online sellers an unfair advantage over bricks-and-mortar retailers. What the market is sorting out is that trying to operate state and local government on analog sales tax collections in an increasingly digital marketplace isn’t working and will ultimately cause other taxes to increase or existing government services to shrink or disappear.

The argument that it’s not feasible to collect is one that has clearly been surpassed by new technologies. States argue that new software has been developed to calculate the sales tax and that about half the states are now part of the Streamlined Sales Tax Agreement, which standardizes which items are taxable and which are exempt.

Based on the Supreme Court’s 1992 ruling in the Quill v. North Dakota case, retailers have argued that they don’t always have to collect taxes on Internet sales. But the high court in recent years appears to be reconsidering that ruling. The Quill case dictated sellers must collect sales tax from out-of-state customers only if they have a physical brick-and-mortar presence in the customer’s state of residence.

A number of states now have laws that require online retailers to collect sales taxes if they have a nexus – a store, warehouse or subsidiary in-state, or if they contract with a local business to advertise their products. But one state experiencing some of the same revenue collection woes as Mississippi is trying a different approach.

A new South Dakota law would make volume of sales a test for online sales tax collection. The law requires any online business that sells more than $100,000 worth of goods in the state or processes more than 200 orders for South Dakotans to collect sales tax. The law is being appealed and states are hopeful that judicial review of the case may overturn the Quill case.

Closer to home, a Louisiana law requires some internet businesses earning more than $50,000 in the Pelican State to collect sales tax if they have ties to a Louisiana business or sell products similar to what can be purchased in-state.

The National Conference of State Legislatures identifies an annual $303.4 million in uncollected Mississippi sales tax revenues. Given our current revenue collection woes and state budget cuts, could it be that new technologies and necessity finally force a sensible enforcement and full collection of the state’s existing sales tax?

(Sid Salter is a syndicated columnist. Contact him