They call Missouri the “Show-Me” state, and Gov. Jeremiah W. “Jay” Nixon, a Democrat, wants someone to show him how a provision in a bill to force sales tax collection by Internet retailers would actually increase rather than cut state revenue.
The bill, which Nixon vetoed last week, covers several areas of business and personal income tax as well as sales and use taxes. It also calls for the state to support two measures designed to increase collection of sales tax by web and catalog retailers. One is the multi-state Streamlined Sales and Use Tax Agreement, under which 24 states have agreed to modify sales tax laws in an effort to make it easier for retailers to collect tax across the states. The other is the federal Marketplace Fairness Act, which was passed by the U.S. Senate in March. If passed by the U.S. House and signed into law, the act would grant states the authority to mandate sales tax collection by Internet and catalog retailers with $1 million or more in annual sales to states where they aren’t already required by law to collect sales tax. Under current federal law, states can mandate sales tax collection only by retailers with an in-state physical presence like stores or distribution centers.
Nixon has not objected to supporting the Streamlined Sales Tax Agreement. In fact, he has already included anticipated revenue from it in his fiscal year 2014 state budget proposal, his spokesman says, without specifying the revenue amount. In the governor’s veto message for the Senate Substitute to House Bill 253, or SS HB 253, Nixon doesn’t mention the Streamlined Sales and Use Tax Agreement, also known as the SST. Nor does he mention a provision in the bill calling for the state to require Internet retailers to collect tax if they get business from Missouri-based affiliate web sites—a provision commonly known in other states as the “Amazon tax,” so-named because its biggest effect would be on Amazon.com, the world’s largest retailer by web sales and No. 1 in the Internet Retailer 2013 Top 500 Guide. Overstock.com, No. 31 in the Top 500, said this week it would re-start its business with Missouri-based affiliate web sites after suspending it following the state legislature’s passage of SS HB 253.
But in his veto message Nixon strongly objected to a provision in the bill that calls for a 0.5% cut in the state’s maximum income tax rates coinciding with enactment of the Marketplace Fairness Act. He contends that the 0.5% cut would amount to a loss in state revenue of $300 million per year.
He adds that the provision also would allow taxpayers to apply for the 0.5% tax reduction for three prior years, resulting in as much as an additional $900 million in lost tax revenue. Although Nixon notes that the Marketplace Fairness Act would also be expected to generate new revenue from sales tax collection, he contends that any additional revenue would not come until a year or so after the federal law was enacted, leaving the state to realize immediate cuts in tax revenue that would hit education and other “vital public services.”
A study from the University of Missouri found that the state could lose $1.78 billion in sales tax revenue between 2010 and 2014 if it doesn’t require more online and catalog retailers to begin collecting sales tax. The study also recommended that the state join the Streamlined Sales and Use Tax Agreement, which enables states to begin receiving revenue from the more than 1,400 retailers that have voluntarily begun collecting sales tax in SST member states even without a new federal law. Under the voluntary program, SST member states can encourage sales tax collection by offering retailers free tax collection software certified by the SST Governing Board.
Without enacting HB 253, the governor’s office did not say how or when it expects the state to join the SST and generate additional revenue for the 2014 fiscal year budget.
Scott Peterson, a former executive director of the Streamlined Sales Tax Governing Board who is now director of government affairs for Avalara, a provider of sales tax processing software, says states that are not already signed up with the SST can still expect to possibly receive some revenue from retailers who have agreed to voluntarily begin collecting tax under the SST program. Some of those merchants have been known to begin collecting sales tax in states regardless of whether the states are members of the SST.
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