One of the study groups Secretary of State Delbert Hosemann assembles annually to kick around business law reform ideas recently got the ins and outs of sales tax simplification procedures, including the mechanisms behind collecting sales taxes charged by out-of-state retailers.
Two bills are circulating through Congress that would give states the authority to collect sales taxes levied by retailers that do not have a physical presence within their borders. For instance, if somebody in Mississippi orders a product online from cabelas.com, that person pays no sales tax because Cabela’s does not have a brick-and-mortar store here.
Online sales taxes are already collected from online retailers with a physical presence in Mississippi — walmart.com, for example, sends sales tax to the Mississippi Department of Revenue whenever it receives an order from somebody in the state.
The Marketplace Fairness Act and the Marketplace Equity Act each requires states, before they’re granted authority to collect out-of-state sales taxes, to prove they have simplified their sales tax procedures via implementing legislation mandating such, or by fully joining the Streamlined Sales Tax User Agreement, whose purpose is to simplify and modernize sales and use tax administration to reduce the burden of tax compliance. It’s intended to improve sales and use tax administration systems for sellers. Mississippi has not fully joined the Agreement, nor has it passed the required legislation, citing a tangle of complications inherent in collecting sales taxes charged by out-of-state merchants.
Mississippi has partly joined 43 other states and the District of Columbia in the pact. There are varying degrees of participation in the agreement, though. Mississippi, for example, only participates in an advisory capacity. The states taking part in the pact have approved an interstate agreement that establishes uniform sales tax rules and definitions.
Each of the bills gives states the option to start collecting out-of-state sales taxes; neither mandates they do so.
Scott Peterson, executive director of the Sales Tax Governing Board, said he and the rest of Streamline officials “presume” that Congress will pass one of the two bills that give states authority to collect online sales tax from out-of-state retailers.
“At some point whatever is finally adopted, Mississippi is going to have to be able to prove to someone” that the state meets the sales tax simplification mandates included in the bills, Peterson said. Members of Streamline are automatically given the approval to collect sales tax from out-of-state retailers, he added.
Where most of the problems arise in collecting sales taxes, he said, are on the retailers’ end. “Everything we’ve done is to make the process simpler from the retail perspective,” Peterson said.
The exact procedures that the Department of Revenue would either have to change or enact are still unclear because the two bills have slightly different requirements toward that end.
The National Conference of State Legislators estimated in 2011 that should the state be given the authority to collect out-of-state sales taxes and choose to do so, it could mean $300 million in annual revenue.
Groups that advocate for Mississippi retailers have said that allowing states to collect out-of-state sales taxes is a matter of leveling the playing field between what are most often locally owned retailers who feel they’re at a disadvantage because their customers pay sales taxes, and those of online retailers with no presence in Mississippi do not. That doesn’t mean the taxes are not owed, though. Once the purchase is made minus the taxes, the burden of paying them shifts from the retailer to the buyer, though there is currently no mechanism for the state to collect.
In the early 1990s, the U.S. Supreme Court ruled that only Congress has the authority to allow states to collect sales taxes charged to residents by retailers that do not have a physical presence within their borders.