Tax Threat 2: Growing Online Sales Means Less Tax Revenue
May 19th, 2015
The second threat outlined in MEPC’s 5 Threats to Mississippi’s Tax System report is the increase in internet sales by retailers that do not collect state sales taxes on purchases by Mississippians. The value of e-commerce as a share of retail trade has increased fourfold in the past 10 years. The state lost an estimated $135 million in online sales tax revenue in 2012. This loophole also harms the competitiveness of local brick-and-mortar businesses that are required to collect sales tax, while their online out-of-state competitors are not.
Federal tax law bars a state from requiring an out-of-state retailer (whether online or mail-order) to collect sales tax unless it has a physical presence in the state. However, this does not mean that taxes are not owed on the items purchased. The consumer still owes a “use tax” equal to what the sales tax would have been if the item were purchased at a physical store; however, most of this revenue will not be collected if the seller is not required to charge it.
Allowing states to require collection of taxes owed from online retail sales is currently being debated in Congress. Some states are fighting large online retailers through the courts to require them to collect sales taxes. Mississippi should work with other states to promote sales tax collection of Internet and catalog sales by enacting the “Amazon Law.” Enacted in 15 states, the law requires Internet retailers with in-state affiliates that direct traffic to their website for purchases to collect sales tax.
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