The state of Missouri lost about $450 million annually over the last decade due to failure to collect Internet sales tax, according to a recent study by MU’s Truman School of Public Affairs Institute of Public Policy.
Internet, or e-commerce, sales have increased over the past two decades, accounting for nearly 17 percent of United States retail sales in 2009. States, however, have no effective means of collecting taxes on those sales.
Federal law and U.S. Supreme Court rulings allow states to levy sales taxes only on businesses with a physical presence in the state. Amazon.com, for example, does not charge sales tax in Missouri because it’s physically located in Seattle. Wal-Mart charges sales tax on Internet sales since it has stores in Missouri.
In April, the Truman school submitted its Internet sales tax study to Missouri lawmakers. For the study, researchers analyzed historical data on e-commerce activity and estimated that the state will miss out on $1.4 billion of potential revenue from 2011 to 2014.
One answer for Missouri may be to join the 24 states that are part of the Streamlined Sales and Use Tax Agreement, said David Valentine, research associate professor in the Truman School of Public Affairs Institute of Public Policy.
Member states encourage companies that sell over the Internet and by mail order to collect taxes on sales made to member states. However, the taxes can’t be legally enforced; online retailers participate voluntarily. On average, member states collected $30.7 million in e-commerce tax revenue from 2005 to 2010, according to the Truman school study.
“The Streamlined Sales and Use Tax Agreement is a short-term fix,” Valentine said. “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.”
Valentine recommends that Missouri legislators lobby the U.S. Congress to pass federal legislation permitting sales tax on Internet transactions across state lines.
The Marketplace Fairness Act, currently under consideration by Congress, 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.
MU researchers say that taxing out-of-state retailers would help Missouri’s economic development. It would level the playing field for retailers located inside state lines, giving consumers incentive to buy locally, he said.
“This difference results in a competitive advantage for firms based outside of the state,” Valentine said.