Missouri moves to tax remote sales via economic nexus
- Dec 17, 2018 | Gail Cole
Update 5.21.2019: The Missouri Legislature has adjourned without adopting economic nexus.
Update 3.1.2019: Senate Bill 189 also seeks to establish economic nexus with a $100,000 sales/200 transactions threshold. In addition, it would require the Missouri Department of Revenue to create and maintain a mapping feature that displays sales tax information, and would take effect October 1, 2019.
In preparation for the 2019 Missouri General Assembly, which commences January 9, 2019, state lawmakers have prefiled more than 100 bills. One would require out-of-state sellers to collect and remit Missouri sales tax.
Missouri Senate Bill 50 seeks to establish an economic nexus policy that would require remote sellers doing a certain amount of business in the state to collect and remit sales tax. It would also require marketplace facilitators like Amazon, eBay, and Etsy to collect and remit tax on behalf of their sellers, and it would simplify sales tax remittance for remote sellers. A provision to reduce the income tax rate is included in the measure as well.
The bill provides the following details.
Sales tax economic nexus
Out-of-state retailers with no physical presence in Missouri would be required to collect and remit sales tax if, in the current or previous calendar year, they:
- Have gross revenue of at least $100,000 from sales of tangible personal property delivered into Missouri, or
- Sell tangible personal property into Missouri in 200 or more separate transactions
This provision would take effect January 1, 2020, and apply only to sales made on or after that date.
Sales tax obligations for marketplace facilitators
SB 50 would require marketplace facilitators meeting the above sales tax economic nexus threshold to register with the Missouri Department of Revenue and collect and remit tax on all sales into the state — their own and their third-party sales — by January 1, 2020.
Marketplace transactions comprise more than half of all sales on Amazon.com, and they make up a growing portion of all ecommerce sales. Yet according to a December 2017 report by the Government Accountability Office (GAO), online marketplace transactions are most apt to go untaxed. Another way of looking at it: Amazon, eBay, Etsy, and other marketplace sales are an untapped source of sales tax revenue.
Missouri is one of a growing number of states seeking to capture more marketplace sales tax revenue. Thirteen states already have a policy in place, some holding the marketplace facilitator (e.g., Amazon) liable for the tax, and some holding the seller (e.g., Martha’s Mittens) responsible. And the California Department of Tax and Fee Administration recently clarified that marketplace sellers meeting the state’s new economic nexus standard are responsible for collecting and remitting tax on those sales as of April 1, 2019.
Simplified sales tax compliance for remote sellers
To facilitate compliance for all out-of-state sellers, Missouri would adopt a Simplified Remote Sales Tax Remittance Program. With approximately 2,200 local tax jurisdictions, such simplification seems a must.
Out-of-state sellers and marketplace facilitators that make taxable sales in Missouri but have no physical presence in the state could apply to participate in a Simplified Remote Sales Tax Remittance Program. Those accepted into the program by the Department of Revenue would have access to a (yet-to-be-developed) “easily accessible, online system in which to collect, report, and remit the simplified remote sales tax.”
Instead of collecting various combined state and local sales tax rates (which differ from jurisdiction to jurisdiction), participating sellers would collect and remit a simplified remote sales tax rate of 6.5 percent for most sales of tangible personal property, and 3.5 percent for sales of food sold or delivered into the state. The Department of Revenue has yet to determine the best way to distribute the collected simplified remote sales tax to local governments.
Participating sellers would be required to record the collected simplified remote sales tax on customer invoices and statements. In the event a seller collects a simplified remote sales tax rate that’s higher than the actual combined rate in effect in a jurisdiction, the seller would be able to file for a refund of the amount paid in excess. The exact process for such refunds has yet to be determined.
Missouri provides a timely filing discount to taxpayers who file and pay sales and use tax on time. A similar discount would be available to participants of the Simplified Remote Sales Tax Remittance Program.
Income tax reduction
Finally, SB 50 provides for a possible reduction in the income tax rate. Starting January 1, 2020, if the amount of net general revenue collected under the Simplified Remote Sales Tax during the previous fiscal year equals or exceeds $40 million, the top rate of income tax would be reduced by 0.025 percent.
For each additional $20 million in remote sales tax revenue collected, the top income tax rate would be further reduced by 0.025 percent. The income tax reduction would be capped at 0.4 percent.
Can it pass?
A bill seeking to tax remote sales was introduced in the Missouri Legislature in February 2018, but it died shortly after being introduced. SB 50 could get more traction in 2019.
For decades, all states lacked the authority to tax sales by businesses with no physical presence in the state. However, on June 21, 2018, the Supreme Court of the United States found this long-standing physical presence rule to be “unsound and incorrect.” The court determined in South Dakota v. Wayfair, Inc. that a business could establish nexus through its “economic and virtual contacts” with the state. States now have the authority to tax remote sales.
Since the Wayfair decision, 30 states and the District of Columbia have adopted economic nexus. Missouri could well be next.