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Study concludes state losing up to $122 million by not taxing remote sales

By BOBBY HARRISON / Daily Journal

Mississippi lost between $105.6 million and $122.7 million in tax revenue in 2016 by people making remote purchases, such as through catalogs or on the internet, where they did not have to pay taxes, according to a new study by the University Research Center.

Of that lost revenue, between $56.4 million and $67.8 million was from internet transactions, estimates the study by the University Research Center, which is a division of the state Institutions of Higher Learning.

“I think that internet sales have increased with the technology and the availability of items offered online,” said state Economist Darrin Webb in an e-mailed response to questions. “I think people have also grown more comfortable with it.”

The issue has come to the forefront during the 2017 legislative session as Mississippi officials, like those in many other states, have grappled with how to collect tax revenue from the remote retail activity. In 1992, the U.S. Supreme Court ruled that states could not tax remote transactions if the retailer did not have a “brick and mortar” presence in the state.

In Mississippi, people pay a 7 percent tax on the purchase of most retail items bought in stores.

As the instances of internet sales continue to grow, more states are trying to collect the tax, perhaps forcing the Supreme Court to revisit the issue. Legislation is progressing in the Mississippi Legislature to try to force remote retailers to collect the 7 percent tax on retail purchases and remit the revenue to the state.

And Tax Commissioner Herb Frierson announced last week that internet retail giant Amazon voluntarily will collect the tax for Mississippi. Frierson is hoping other e-commerce retailers will follow the lead of Amazon.

While the taxing of remote sales would produce a significant amount of revenue for the state, the University Research Center said it would not be as much as in most other  states.

The study cites various reports indicating Mississippi is at or near the bottom in terms of households with internet subscriptions. While the national average is 68.6 percent of those 15-and-older shop online, the average in Mississippi is 58.5 percent – higher than only Oklahoma, according to studies cited by the University Research Council.

In addition, the study cited other data indicating that 51.5 percent of Mississippians 19-and-over possess a credit card or a home equity line of credit. A credit card generally is needed to make remote sales. The national average is 69.7 percent.

The IHL officials used that data, as well other information, to develop their estimates on the level of internet transactions being conducted by Mississippians.

In fiscal year 2016, the state collected $238.3 million in use tax revenue. So, adding the collection of the tax on internet and other remote retail transactions cited in the University Research Center, could significantly increase the amount of the state’s use tax revenue. Total state tax collections in 2016 was $5.6 billion.

The University Research Center estimates are similar to the conclusions reached by other studies, but less than those of a 2012 University of Tennessee study. That study estimated the state was losing about $300 million yearly by the inability to tax remote transactions.

The University Research Center study concluded, “Based on national trends, e-commerce sales to Mississippi should only be expected to continue to grow. However, for a number of reasons.., growth of e-commerce sales to Mississippi likely will lag that of most other states.”

The study was conducted by Ercilla Dometz, J. Corey Miller and Bob Neal.



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One comment

  1. Except that the numbers are vastly overstated and the authors freely admit having to make a number of huge assumptions.

    Most of the top online retailers have a physical presence in the state and already collect sales tax. Amazon will be now as well and they’re the dominant retailer. The real pot of gold the state is hoping for is really a rounding error, not the number in the study, especially once Amazon collects tax for MS.

    How much money does MS spend on educating their own taxpayers about their use tax obligations? Probably zero. That’s the logical first step.

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