By Brad Fischer
COLUMBIA, Mo. – Internet, or e-commerce, sales have increased over the past two decades, comprising nearly 17 percent of the total U.S. sales in 2009. However, many states, including Missouri, have no effective means of collecting taxes on those sales. Researchers at the University of Missouri Truman School of Public Affairs found that the state lost approximately $468 million annually in sales tax revenue during the past decade.
Federal law and U.S. Supreme Court rulings only allow states to levy sales taxes on a business with a physical presence in the state. For example, Amazon.com does not charge sales tax in Missouri because it is physically located in California. However, Wal-Mart charges sales tax, since it has stores in Missouri. In the study, researchers analyzed historical data on e-commerce activity and estimated that the state will miss out on $1.4 billion in potential revenue from 2011 to 2014.
To attempt to collect some e-commerce sales tax revenue, 24 states have joined the Streamlined Sales and Use Tax Agreement. Missouri is not a member state. Member states encourage companies that sell over the Internet and by mail order to collect taxes on sales made to member states. However, online retailers participate voluntarily. On average, member states collected $30.7 million in e-commerce tax revenue from 2005 to 2010.
“The Streamlined Sales and Use Tax Agreement is a short-term fix,” said David Valentine, research associate professor in the Truman School of Public Affairs Institute of Public Policy. “Since the agreement is voluntary, the amount of revenue collected is much less than the amount of tax we would expect the state to collect if all e-commerce retailers remitted sales taxes.”
In the long term, Valentine recommends that Missouri legislators lobby Congress to pass new federal legislation permitting sales tax on Internet transactions across state lines. Currently under consideration, the Marketplace Fairness Act would allow states to enter the Streamlined Sales and Use Tax Agreement or create their own systems. The act, co-sponsored by Sen. Roy Blunt (R-Mo.), would give states additional enforcement power to increase compliance with tax laws.
In addition to increasing tax revenue, MU researchers think that the state economy could benefit from e-commerce sales taxes as well. By taxing out-of-state online retailers, the state would level the playing field for retailers located inside state lines, incentivizing consumers to buy locally.
“This difference results in a competitive advantage for firms based outside of the state,” Valentine said. “Untaxed purchases made through websites and mail order firms, such as Amazon, account for this large amount of uncollected sales tax.”
The study, “Internet Sales and Use Tax Issues in Missouri,” was submitted to Missouri state legislators in April.