The State of Mississippi could lose more than $200 million if a lawsuit filed by 20 cities against the State Tax Commission over sales tax collections is successful. But the Legislature is moving ahead with a bill that would clarify that the present procedure used by the Tax Commission is correct.
Twenty cities sued the Tax Commission last November over the commission not returning the 18.5% of sales taxes collected from vendors who pay direct sales taxes to the state. Ed Buelow, chairman of the Tax Commission, said a portion of the lawsuit involves vendors such as plumbers or a manufacturing company who buy materials in many different locations in the state. Rather than having to pay sales tax separately in each city where they do business, they are allowed to send one payment to the Tax Commission. Cities do not receive a return on direct sales taxes payments.
“This facilitates businesses who buy materials from all different locations,” Buelow. “If they didn’t have direct pay, they would have to file in each of those locations and it would be an expensive bookkeeping item for businesses. The idea is to allow those companies or services to not have to keep up with multiple cities.”
Buelow said the Tax Commission believes that is the way the Legislature wants the issue handled. He said if cities want a share on direct payments, they should lobby the Legislature to direct the Tax Commission that direct payments are also subject to the diversion to the cities.
“The law doesn’t say that,” Buelow said. “If the law doesn’t say that, we don’t do it. All we are doing is collecting the tax, and interpreting the law the way the Legislature wants us to do. It seems like if we were not interpreting it right after 30 years, the Legislature would have told us. Our position on the lawsuit is that it has no basis.”
“It is important to note that the overwhelming majority of cities are not involved in this suit,” Buelow said.
The cities involved in the lawsuit are Jackson, Canton, Pearl, Amory, Starkville, Indianola, Gulfport, Grenada, Ocean Springs, Belmont, Greenville, Pontotoc, Waynesboro, Corinth, Newton, Booneville, Ridgeland, Calhoun City, Kosciusko and Houston.
Another contention of the lawsuit is that interest and penalties collected off delinquent taxes should be subject to diversion to the cities. Again, Buelow said the Tax Commission has never done that, and doesn’t believe that is the intent of the law.
A third issue in the lawsuit is out-of-state accounts that have direct pay. The lawsuit alleges the tax commission should divert payments from these out-of-state accounts to the cities where the products are sold.
“Again, that is a nightmare for the businesses to keep up with,” Buelow said. “If you were a company doing business in 100 different cities, you would have to have 100 different filings. If you have to divert it, then would have to file a return in every city. And that would be a bookkeeping nightmare for a corporation, and unnecessary, in our opinion.”
The Senate recently acted to support the position of the Tax Commission by barring cities from attacking the diversion formula. Sen. Bill Minor (D-Holly Springs), who chairs the Senate Finance Committee, said the cost to the state if the lawsuit was successful could be $200 million. The bill passed the Senate with only one dissenting vote.
Buelow said he doesn’t think it is right for one governmental subdivision to be suing another governmental subdivision when they have another remedy that is available to them.
“If they don’t agree with us, they should take it up with the Legislature,” he said.
Contact MBJ staff writer Becky Gillette at firstname.lastname@example.org.