The Center on Budget and Policy Priorities released a report today that lays out four steps for states to update their sales taxes. Three of their four recommendations have not been implemented in Mississippi. Those three include:
Broadening the sales tax base to include more services
Mississippi includes some services in its sales tax, but they are not taxed comprehensively. Goods are subject to sales tax unless specifically exempt. Conversely, services (like pet grooming or salon services) are taxed only if they are specifically listed in law. Household consumption has changed in the last 40 years to include more services than goods, eroding the traditional sales tax base for states. The figure below from the Center on Budget and Policy Priorities shows how purchases of services have increased while goods have decreased as a share of household consumption.
Require large online retailers to collect sales tax
Congress continues to debate a national policy on sales tax collection on internet purchases. States lose at least $20 billion in revenue annually from uncollected sales taxes from online purchases. Currently, due to a Supreme Court ruling, states cannot require online retailers to collect sales tax unless they have a physical presence in a state. Until Congress allows states to require retailers to collect state sales taxes, some states have been enacting policies that address the issue with specific retailers. Twelve states require Amazon to collect sales taxes because of their use of affiliates who have a physical presence in their state.
Charge hotel taxes on full retail value of rooms booked online
Online travel sites do not pay sales taxes on the full retail value of the rooms they book, instead remitting sales taxes only on the wholesale value. However, when a traveller books a hotel room directly with the hotel or through a travel agent, they are required to pay the tax on the full retail amount. This practice costs states and localities an estimated $275-400 million annually.
Mississippi needs to update our sales tax to address these issues to improve collections and make the sales taxes more equitable for local retailers.
Source: Leachman, Michael and Michael Mazerov, “Four Steps to Moving State Sales Taxes Into the 21st Century” Center on Budget and Policy Priorities, July 9, 2013.
