Mississippi will start requiring some large online and mail-order retailers to collect taxes on sales made from outside the state beginning Dec. 1, even though the move could be unenforceable and trigger an immediate court challenge.
The state Revenue Department filed notice Wednesday that it was enacting the rule, more than 10 months after proposing it.
It’s part of a nationwide effort to overturn past U.S. Supreme Court rulings forbidding states from requiring tax collections by companies without in-state locations, as spending shifts to online retailers. Mississippi Revenue Commissioner Herb Frierson has acknowledged that the rule directly challenges those decisions, saying he wants the court to reconsider. Alabama, Tennessee, South Dakota, Massachusetts, Vermont and Wyoming have all pursued challenges against a 1992 U.S. Supreme Court decision that rejected tax collection by out-of-state merchants.
Some opponents say Frierson doesn’t have the power to enact a rule contradicting federal law.
“This is outrageous for a state agency to collect a tax in a manner that has already been ruled unconstitutional by the Supreme Court,” said Jameson Taylor, interim president of the conservative Mississippi Center for Public Policy. “It’s simply lawless.”
The rule was rewritten following a February hearing. But it’s essentially still the same — any company marketing to Mississippi customers and making sales of more than $250,000 a year into the state must collect a 7 percent tax.
Already, individuals and companies that buy from out-of-state sellers are required to pay Mississippi’s 7 percent use tax, which parallels the sales tax that in-state retailers collect. While businesses often pay the use tax, individuals typically don’t. The department said in February that consumers paid only $250,000 in 2016. Officials said then that Mississippi could be missing out on as much as $100 million or $150 million a year in revenue.
Mississippi lawmakers this year failed to act on the issue after Lt. Gov. Tate Reeves blocked the legislation, saying it was unconstitutional. The Revenue Department cites the authority of a 1988 state law that was effectively voided by the 1992 decision.
“I don’t think there’s any way today that this could be enforced, absent the Supreme Court overturning Quill,” tax lawyer John Fletcher said Wednesday, referring to the Supreme Court case. He said a lawsuit is likely, noting Alabama was sued after enacting similar rules.
One change in the final rule is that it gives explicit examples of how a business is “purposefully or systematically exploiting the Mississippi market” including via TV, radio, billboard or print ads, direct mail or phone calls. But it also says businesses that advertise to Mississippi customers through online banner ads, phone applications, or electronic messages must pay the tax. Fletcher said those provisions could create arguments about when an ad is truly directed at Mississippians.
For now, the goal could just be to get companies to sign up voluntarily. On Feb. 1, Amazon.com started voluntarily collecting taxes on Mississippi sales, which could generate $15 million to $30 million yearly in taxes. By July, Revenue Department officials said about 20 other online retailers had signed up. There have been no public estimates of how much money those collections have raised.