EXPERT AVAILABLE: Uncollected Internet Sales Taxes Costing Missouri Millions in Potential Revenue During Holidays

MU researchers recommend legislative action to help local economy, state revenue

December 17th, 2012

The views and opinions expressed in this “for expert comment” release are based on research and/or opinions of the researcher(s) and/or faculty member(s) and do not reflect the University’s official stance.

COLUMBIA, Mo. –Nov. 26, 2012, better known as “Cyber Monday,” was the biggest online sales date ever, according to analysts from comScore. Despite these high numbers, 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 in the last decade and say that number will rise in the future.

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 could earn $1.4 billion in potential revenue from 2011 to 2014 if it had some form of e-commerce sales tax.

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 Andrew Wesemann, a doctoral student in the Truman School of Public Affairs Institute of Public Policy at MU. “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, Wesemann 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.) and Sen. Richard Durbin (D-Il.), 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,” Wesemann 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 last spring. That report can be found here: http://ipp.missouri.edu/files/ipp/attachments/4-2012_-_internet_sales_and_use_tax_final.pdf