You can bet a $300 million windfall would cheer up Mississippi’s Revenue Estimating Committee when it convenes this month to set estimates on state collections of taxes and fees.
The $300 million is the National Conference of State Legislatures’ estimate on the amount of money Mississippi loses each year by not taxing certain online and catalog sales. So why not grab the money and start patching up holes in the state’s budget?
Easier said than done, says Kathy Waterbury, spokeswoman for the Mississippi Department of Revenue.
First, the U.S. Supreme Court ruled in 1992 that only Congress can give states authority to require tax collection by out-of-state retailers. And at the moment, Congress does not want to be seen as levying a new tax, no matter how much benefit cash-starved states and localities would gain from collecting a sales tax on purchases made from such online retailers as Amazon, Overstock, LLBean, TigerDirect and the like.
That doesn’t mean states and bricks-and-mortar retailers aren’t pushing Congress in that direction. Nationally, they estimate they will lose $11 billion in sales to untaxed Internet purchases this year and about $12 billion
U.S. Reps. Steve Womack, an Arizona Republican, and Jackie Speier, a California Democrat, introduced an “eFairness” bill in October to set the stage for states to begin collecting the cyber sales taxes. Crowell Armstrong, president of the Mississippi Retail Federation, said his organization and retail groups nationwide see the bill as a good first step toward leveling the playing field between bricks-and-mortar stores and their cyber competitors.
States are unifying in their pursuit of the hundreds of millions of dollars to be gained from taxing online retailers. Mississippi has joined 43 other states and the District of Columbia in what is called the Streamlined Sales Tax Agreement, an effort to simplify and align sales tax policies as well as ease the burden for national online merchants to collect the sales taxes.
States have various degrees of participation in the streamlined agreement. Mississippi, for instance, has limited its participation to an “advisory” membership.
The states taking part in the pact have approved an interstate agreement that establishes uniform sales tax rules and definitions, and 24 states have taken the next step of passing implementing legislation. Mississippi is not among the 24; it cites the immense complications that would be involved in implementing the cyber taxes.
The Womack-Speier bill would allow states that have joined the streamline agreement to continue on their path toward simplification but allows states such as Mississippi that are not part of the streamline process to adhere to minimum requirement to receive federal authority to collect remote sales taxes, said Armstrong of the Mississippi Retail Federation.
The stakes are huge, according to the National Conference of State Legislatures, which projected in May 2010 that states could eliminate 13 percent of their combined budget gaps if online retailers collected sales tax.
“We’d love to push this (the streamline agreement) through Congress and have set rules for everybody,” Armstrong said.
Outside of that, the states should be able to set collection rules of their own, he said.
Armstrong said the Mississippi Retail Federation would resume efforts in the next legislative session to convince lawmakers that Mississippi should join the two dozen states that have already passed legislation to implement the streamline process.
However, much will hinge on what Congress does, Armstrong said. “We’ve been told to hold up on everything until Congress does something.”
Online customers of national retailers such as WalMart, Best Buy, Target, HomeDepot and Sears are mandated to collect sales taxes if they have a physical location in a state, which most all of them do.
Theoretically, customers of cyber retailers are obligated to pay sales taxes on online purchases but seldom do. They could be audited and penalized, however, according to the Alliance for Main Street Fairness, a coalition of retailers and small businesses seeking to close what they called “a massive loophole” online retailers are exploiting.
“Stores like Amazon and Overstock are leaving individuals who purchase items on their Web sites exposed as these purchasers are responsible for the tax themselves,” the Alliance for Main Street Fairness said in a press statement.
For its part, Amazon has indicated it could live with a single federal standard on the sales tax collections. “The right way to fix this is with federal legislation,” the company said in a press statement. “That’s where it can be fixed properly.”