Missouri could tax remote sales, participate (as a nonmember state) in SST
Updated November 24, 2020.
The Missouri General Assembly is considering a measure that would require certain out-of-state sellers and marketplace facilitators to collect and remit Missouri sales tax. The measure would also allow Missouri to participate in the Streamlined Sales and Use Tax Agreement as a nonmember state, which could greatly simplify sales tax compliance for remote sellers.
Economic nexus in Missouri
As introduced, House Bill 2, the Utilizing Streamlined Sales and Use Tax Services Act, would impose a sales tax collection obligation on out-of-state vendors whose cumulative gross receipts from sales of tangible personal property and digital goods and services in Missouri in the current or previous year equal or exceed $100,000.
Remote vendors meeting this economic nexus threshold in 2020 or 2021 would have to start collecting and remitting applicable Missouri sales and use tax starting January 1, 2022. After that date, vendors would start collecting tax on the first day of the first month that’s at least 30 days after hitting the threshold.
Marketplace facilitator collection requirement
Missouri would also require marketplace facilitators meeting the $100,000 economic nexus threshold to collect and remit the tax due on all sales made through the platform, including third-party sales. This requirement would take effect January 1, 2022, as well.
HB 2 defines “marketplace facilitator” as a person who 1) facilitates retail sales by a marketplace seller by listing or advertising for sale taxable tangible personal property or services, and 2) directly or indirectly collects payment from the purchaser and transmits it to the seller. Under this definition, the collection requirement wouldn’t apply to Craigslist and other platforms that don’t process payments on behalf of sellers.
The bill also excludes persons providing travel agency services from the definition of marketplace facilitator.
Nonmember participation in the Streamlined Sales and Use Tax Agreement
Finally, HB 2 would allow (but not require) Missouri to participate in the Streamlined Sales and Use Tax Agreement (SST) as a nonmember state. This would enable out-of-state businesses selling in Missouri to use SST certified service providers (CSPs) and central registration system services.
A CSP is an agent certified by the SST to perform all sales and use tax functions for an out-of-state seller, other than the seller’s obligation to remit tax on its own purchases. Businesses can outsource most sales tax administration responsibilities to a CSP, thereby simplifying sales and use tax compliance. Perhaps best of all, in SST member states where a business is considered a “volunteer seller,” CSP sales tax calculation and reporting services are free for the business; CSPs are compensated by the states.
Missouri wouldn’t have to become a full SST member state, which would require adopting uniform tax base definitions and rules, simplified administration of exemptions, simplified state and local tax rates, and more — a big ask for a state with approximately 2,200 overlapping local tax jurisdictions.
Instead, the Missouri Department of Revenue would be permitted “to take all such actions as may be reasonably required” to participate in the SST as a nonmember state and “allow sellers to use [SST’s] certified service providers and central registration system services.” It would be the first state to do so.
Scott Peterson, vice president of government affairs at Avalara, explains, “The Streamlined Sales Tax uniformity provisions are a great benefit to sellers, but they can be very difficult for some states to adopt. However, certifying service providers along with taxability, rates, and local government boundaries would go a long way toward reducing the burden sellers have collecting the Missouri sales tax.”
In fact, the SST Governing Board (SSTGB) is encouraging participation by nonmember states; it’s concerned a remote seller will challenge a remote sales tax law if nonmember states don’t “do something to simplify their requirements and remove the ‘undue burden’ on remote sellers.”
When the Supreme Court of the United States overruled the physical presence requirement in South Dakota v. Wayfair, Inc. (June 21, 2018), thereby authorizing states to tax remote sales, it highlighted three aspects of South Dakota’s law that were “designed to prevent discrimination against or undue burdens upon interstate commerce.” These are:
- Safe harbor for small businesses (the economic nexus threshold)
- Prospective enforcement of economic nexus
- South Dakota’s membership in the SST
Most of the more than 43 states with economic nexus provide safe harbor for small businesses and prohibit retroactive enforcement. However, only 24 states are members of the SST.
To help nonmember states remove undue burdens on remote sellers and increase uniformity among states, the SSTGB “invites nonmember states to participate” in numerous SST programs, including but not limited to the Streamlined Sales Tax Registration System (SSTRS) and the certification process for new CSPs.
In order to participate, a state must enact legislation indicating it will:
- Allow sellers to use the SSTRS without registration fees
- Develop and post rate and jurisdiction databases in the approved uniform format
- Complete and post the Streamlined Taxability Matrix, highlighting any differences between the state and SST definitions
- Participate in contracts with SST CSPs, including providing compensation for CSP services
- Provide liability relief as required under the SSUTA
- Agree to pay the annual membership dues
"Missouri has nearly 1,500 different local taxing jurisdictions," notes Craig Johnson, executive director of the Streamlined Sales Tax Governing Board. Were Missouri to provide a rate and jurisdiction database, taxability matrix, and CSP services like SST member states, "remote sellers would have the opportunity to much more easily comply with Missouri’s requirements. This would also put Missouri and its local jurisdictions in a position to be able to efficiently collect the applicable sales and use taxes on remote sales."
Does HB 2 have a shot at becoming law?
This isn’t the first time Missouri lawmakers have tried to enact an economic nexus or marketplace facilitator law, nor is it the first time they’ve tried to get the state into the SST. Whether this effort will succeed where previous attempts have failed remains to be seen, but there are a few indications that it might.
For one, Missouri needs money. Its general fund tax revenue is projected to decline by $864 million in fiscal year 2020 and $1 billion in fiscal year 2021 due to the pandemic. According to Governor Mike Parson, “COVID-19 has had an overwhelming impact on our state.” The supplemental budget will provide access to federal funding released after Missouri’s FY 2021 budget was passed in May. If HB 2 is passed, taxing online sales would bolster the general fund.
Furthermore, Missouri lawmakers generally support a remote sales tax. Last August, the House Local Government Caucus urged Gov. Parson to “to call a special legislative session to establish a Wayfair tax law in Missouri” — referring to South Dakota v. Wayfair, Inc. Local governments and brick-and-mortar businesses also tend to favor taxing remote sales.
Avalara is a CSP in the 24 SST states and Pennsylvania, which runs its own program. Learn if you qualify for no-cost sales tax services.
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