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Mississippi’s Internet Sales Tax: The explosion of online retail sales has fostered a debate about whether and how to collect taxes on those purchases from companies that are not currently required to collect them. During the 2017 legislative session, the Mississippi House of Representatives passed a bill regarding this issue. That bill, HB 480, died in the Senate Finance Committee, but the issue itself is not going away. The Mississippi Department of Revenue (DOR) has proposed a regulation very similar to the legislation. A major difference between the regulation and the legislation is that HB 480 would have directed that the taxes collected by certain out-of-state sellers be spent on road and bridge repair. Although there are many aspects to this debate, this paper is intended to explain only a few of the policy matters involved. It does not seek to take a side, but to impartially explain the pertinent facts. For the most part, we will deal with things as they are, not as they should or should not be.
Is this a new tax? Is it a tax increase? The answer to both questions is no, at least as applied to the tax itself. The process to collect the tax will be taxing – logistically, financially, and emotionally – especially for small businesses. But the use tax on the purchase itself is neither a new tax nor a tax increase. Here’s why. For every item you buy right now that is subject to sales or use tax, you are the one who owes the tax. It would have perhaps been more accurate to call it a “purchase tax” than a “sales tax.” The tax is not on the business from which you purchased the item. The tax is assessed on the item itself, and you as the purchaser owe the tax. In order to make it easier to identify and collect the tax, the state requires sellers (retail stores, for instance) to collect it for you. That’s why it’s not included in the price of the product but is identified as a separate item on your receipt. (In contrast, businesses include the cost of their own taxes, such as income or property taxes, in the underlying price of the product, not as a separate item on the receipt.) Consider this analogy. You owe tax on your income. In order to increase compliance, the state requires your employer to withhold money from your paycheck and send it to DOR. That’s not a tax on your employer. You are the one who owes the tax. If your employer doesn’t withhold enough, you still owe the full tax on your income, and you are required to remit it when you file your tax return. In the same way, if a retailer – in-state or out-of-state – collects an adequate amount of sales or use tax for you, you owe nothing more. But if the retailer does not collect it, you still owe it. Whether you have noticed or not, or whether you have answered it truthfully or not, your Mississippi tax return asks you to identify the amount of purchases you made from out-of-state companies for which you did not pay sales or use tax. You are supposed to pay 7% of that amount to the state. Apparently, not many people do that. If you buy an item in another state and the seller charges you sales tax in that state, you can deduct that amount from the use tax you would otherwise owe to the state of Mississippi. The very important exception to this: you cannot deduct sales or use taxes paid in another state on most motorized vehicles (cars, trucks, motorcycles, boats, etc.) whose first use will be in Mississippi. In other words, if you buy one of those items in another state, and it has not been used before, you will owe the full use tax in Mississippi even if you paid sales tax in the state where you bought it.
To summarize: the tax on purchases from out-of-state sellers is a tax that is owed now; it is not a new tax, and it is not a tax increase. If the tax is already owed, what’s the problem with requiring sellers to collect it? If that’s the case, has Congress shown any interest in allowing it? Since Congress has not acted, what governs internet tax collection?
If Congress does eventually pass a bill, what safeguards are likely to be approved for small businesses to deal with the complexity?
Are those safeguards in the proposed DOR regulation? If the U.S. Supreme Court has said states cannot require out-of-state businesses with no physical presence in-state to collect these taxes, why would DOR attempt to do so anyway? For the legislature, the apparent motivation behind HB 480 was to increase the amount of money being directed toward road and bridge repair, by allocating to that purpose the amount of use taxes collected and remitted by out-of-state sellers. Of that amount, 70% would have gone to the state Department of Transportation for state-maintained roads and bridges, and 30% to cities and counties for local road and bridge repair. Normally, the use tax goes into the General Fund, which is the primary source from which the legislature appropriates funds to schools, Medicaid, prisons, etc. Road and bridge funding comes primarily from the tax on gasoline and other fuels, generally referred to as the “gas tax.” Other Common Questions Those who would answer “no” say it is wrong to place the tax-collection burden on out-of-state sellers because the sellers don’t use water and sewer infrastructure, or fire and police protection, or other benefits provided by local and state government to brick-and-mortar establishments. They also say buyers generally choose to purchase online more for convenience than price, so the 7% difference would not change the purchasers’ buying decisions. In addition, they say sales tax collections have not declined despite the rise in online sales. I noticed Amazon is now charging me 7% on the items I buy from them. If they aren’t required to collect tax on their sales to Mississippians, why are they doing so? Do we know whether Amazon is receiving any special benefits as a result of their agreeing to collect a use tax? March 1, 2017
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