Cyber Monday Not a Good Deal for State Revenue

November 28th, 2011

Today is Cyber Monday, a day in which online retailers offer discounts to holiday shoppers. It began as online retailers observed significant increases in sales on the Monday after Thanksgiving. According to comScore, last year’s cyber Monday sales reached over $1 billion dollars and were up 16% over the previous year.

Cyber Monday also holds significance for the state budget. Why?

While some internet retailers remit sales tax to the state of Mississippi, they are not required to collect sales taxes. Federal tax law does not require an out of state retailer (whether online or mail-order) to collect sales tax unless it has a physical presence in the state. If Mississippians make purchases online and the retailer does not collect the sales tax, the state loses revenue that could have been used for the education of children, to keep college affordable or to create healthy families.

Does that mean that taxes are not owed on the items purchased? No.

If sales taxes are not collected on any item purchased via the internet or mail order, the consumer owes a use tax on that item equal to what the sales tax would have been if it were purchased at a “brick and mortar” store. Use taxes may be paid by filing with the Mississippi Department of Revenue.

Rising internet sales are a potential threat to the adequacy of Mississippi’s system of collecting revenue – a system that relies heavily on the sales tax. This growing imbalance also creates a playing field that is not level among local small businesses and out of state retailers. If out of state retailers can offer products similar to products sold by local businesses for lower prices because of the absence of a requirement to collect a use tax, then local businesses could be affected by the drop in demand for their goods.

Many states are looking at ways to take action to require online vendors to collect sales tax.

More information on internet sales and the sales tax will be available in MEPC’s upcoming report on threats to state revenue.