Missouri bill would complicate local use tax collection for out-of-state online sellers
Update May 26, 2021: Senate Bill 153 was delivered to the governor on May 25, 2021.
Update May 5, 2021: Two bills seeking to impose a Missouri sales and use tax collection obligation on certain remote retailers and marketplace facilitators are getting closer to the governor’s desk. On May 4, 2021, the Missouri Senate passed the Senate Committee Substitute for House Bill 544 out of committee. A few days prior, the House placed an amended version of Senate Bill 153 on an informal calendar of Senate bills for third reading.
The substitute for HB 544 (which is also an amended version) no longer limits economic nexus to internet vendors only. Both bills would establish economic nexus and a marketplace facilitator collection requirement starting January 1, 2023 (not January 1, 2022, as proposed in earlier versions). Also, both would subject affected vendors to any new local use tax enacted on or after January 1, 2023 (and imposed by a local government).
However, remote vendors would not be subject to a local use tax in effect prior to January 1, 2023, unless a majority of voters approved an expansion of the local use tax after January 1, 2023, or the vendor was or would have been subject to the local use tax under the laws in effect prior to January 1, 2023.
Both bills would also repeal Missouri’s click-through nexus provision and allow vendors to engage a certified service provider — “an agent certified by the department of revenue to perform all the seller’s sales and use tax functions, other than the seller’s obligation to remit tax on its own purchases.”
If either amended bill is enacted, the Missouri Department of Revenue would be required to create and maintain a mapping feature displaying local sales and use tax information, including the current combined sales and use tax rates. This mapping feature would need to be up and running by July 1, 2022, as described below.
The original post, below, first published on February 26, 2021, and was updated March 5, 2021.
A bill making its way through the Missouri Legislature would impose a use tax collection obligation on out-of-state internet vendors with annual cumulative gross receipts in the state of at least $100,000. It would also give local jurisdictions the power to exclude remote internet sales from the local use tax.
If House Bill 554 passes as written, it will be extremely difficult for remote online sellers to keep up with local use tax elections and their own local use tax collection requirements.
Under current law, Missouri use tax is imposed on the use, storage, or consumption of tangible personal property in Missouri, unless the purchase is subject to sales tax or there is a specific exemption. Out-of-state sellers generally aren’t required to collect and remit Missouri use tax, but Missouri purchasers are responsible for remitting the equivalent consumer use tax directly to the Missouri Department of Revenue.
Economic nexus would take effect January 1, 2022
Starting January 1, 2022, HB 554 would require an out-of-state internet vendor with no physical presence in the state (remote internet vendor) to register with the Missouri Department of Revenue and collect and remit all applicable use taxes after meeting the economic nexus threshold of $100,000 or more in cumulative gross receipts from internet sales of tangible personal property in Missouri during any 12-month period.
Remote internet vendors would have to determine on a quarterly basis whether the $100,000 economic nexus threshold has been met. After reaching the threshold, the vendor would have “no more than three months following the close of the preceding calendar quarter” to register with the Missouri Department of Revenue and commence collecting and remitting applicable use taxes.
Missouri’s move to adopt economic nexus isn’t surprising: It’s one of only two states with a general sales tax that doesn’t already enforce economic nexus. Florida is the other holdout, and it, too, is looking to adopt economic nexus.
Where HB 554 stands out is that it would apply economic nexus only to remote internet sales. Mail-order or phone sales wouldn’t count toward the economic nexus threshold or be subject to Missouri use tax.
HB 554 is also unique in that it would give local governments the freedom to tax, or not tax, remote internet sales.
Local governments could tax — or not tax — remote internet sales
Economic nexus laws typically apply to both state and local sales or use tax, though there are exceptions to that rule: There’s no statewide sales tax in Alaska, for example, but some cities and boroughs in The Last Frontier enforce economic nexus for local sales tax.
As written, Missouri HB 554 authorizes political subdivisions in Missouri to extend their local use tax to “out-of-state purchases made through an internet website” starting January 1, 2022 — but it doesn’t require political subdivisions to extend their local use tax to remote internet sales.
Per the bill, a remote internet vendor “shall not be subject to local use tax imposed by a political subdivision in this state enacted prior to January 1, 2022, except in such political subdivisions in which a majority of voters have approved expanding a use tax that was enacted prior to January 1, 2022.”
Furthermore, a political subdivision may exclude remote internet vendors from the obligation to collect and remit any local use tax enacted on or after January 1, 2022.
As with the state use tax, local use tax would apply only to remote internet sales; catalog or phone sales by a remote vendor wouldn’t be subject to state or local use tax under the proposed legislation. Instead, the purchaser would be liable for any state and local use taxes due on out-of-state purchases not made through an internet website.
Purchasers must remit use tax to the Missouri Department of Revenue annually with a use tax return. However, persons whose total purchases from out-of-state vendors don’t exceed $2,000 in a calendar year aren’t required to remit a use tax return.
Department of Revenue to provide a free downloadable electronic database
States won the right to tax remote sales when the Supreme Court of the United States overturned a physical presence rule in South Dakota v. Wayfair, Inc. (June 21, 2018). The court sided with the state in part because “South Dakota’s tax system includes several features that appear designed to prevent discrimination against or undue burdens upon interstate commerce.” Thus, states are keenly aware of the need to streamline and simplify state and local sales and use tax compliance for remote sellers. The home-rule states of Colorado and Louisiana have invested in costly computer systems to do just that.
Under HB 554, remote tax compliance in Missouri would be more complex than it would be if local use tax collection were requisite. However, the measure does attempt to ease the burden of compliance for remote internet vendors by requiring the Missouri Department of Revenue “to provide and maintain a downloadable electronic database at no cost to the user for taxing jurisdiction boundary changes and tax rates.”
The Missouri Department of Revenue already maintains a map displaying local sales tax information. This bill requires use tax information to be added to the mapping feature. Additionally, the map “shall have the option to showcase the borders and jurisdictions of the following political subdivisions”:
- Ambulance districts
- Community improvement districts
- Fire protection districts
- Levee districts
- Library districts
- Neighborhood improvement districts
- Port authority districts
- School districts
- Tax increment financing districts
- Transportation development districts
- Any other political subdivision that imposes a sales or use tax within its borders and jurisdiction
HB 554 also requires the department to update the mapping feature by July 1, 2022, to include the total sales tax rate and the total use tax rate “for combined rates of overlapping” sales and use taxes levied.
Vendors would not be liable for errors caused by relying on incorrect sales and use tax data provided by the Department of Revenue.
Marketplace facilitators responsible for collecting and remitting Missouri use tax
Finally, marketplace facilitators meeting the state’s $100,000 economic nexus threshold would be required to register with the Department of Revenue to collect and remit use tax on all sales made through the marketplace for delivery in Missouri. Like economic nexus, the marketplace facilitator law would take effect by January 1, 2022.
The marketplace would be eligible for any applicable discount for timely filing of sales and use tax provided by the department.
Pros and cons of the proposal
Supporters of HB 554 include the Missouri Retailers Association, the Missouri Grocers Association, the Missouri Economic Development Council, and the Missouri Chamber of Commerce. Opponents include the Missouri Budget Project, County Commissioners of Missouri, and the Missouri Association of Counties.
According to the committee bill summary, proponents support the bill because:
- It collects a use tax on purchases made online
- It cuts the income tax
- It assists local governments by allowing them to collect local use taxes on online purchases (provided voters approve the collection of local use taxes by ballot measure)
- It levels the playing field for local businesses required to collect sales tax by extending the use tax to online sales
However, some supporters worry that limiting the use tax requirement to remote internet sales “may be troublesome since purchasers could make orders with use of a computer but actually make a purchase over the telephone in order to avoid the tax.”
According to the bill’s detractors, “Local governments that collect use taxes have already placed a use tax on the ballot and have been approved by voters. It would be an extra burden to place a new use tax on the ballot. Additionally, they claimed that this would be a new tax rather than changing the nexus of the existing use tax.”
It should be noted HB 544 isn't the only economic nexus/marketplace facilitator bill under consideration in Missouri. Others include House Bill 555, which is substantially similar with respect to sales and use tax, and Senate Bill 153. Another, House Bill 2, would also allow out-of-state businesses selling into Missouri to use Streamlined Sales and Use Tax certified service providers and central registration system services.
Learn about remote sales and use tax collection requirements in other states in this state-by-state guide to economic nexus laws and state-by-state guide to marketplace facilitator laws. And if you're concerned your sales activity may have triggered an obligation to collect and remit tax in one or more states, the Avalara Sales Tax Risk Assessment can help.
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