Lt. Gov. Tate Reeves said Monday that the House bill that would have created an internet sales tax will die in committee on Tuesday’s deadline for action.
The bill, which passed in the House by a 76-41 margin on Feb. 1, would require out-of-state businesses with more than $250,000 in sales but no physical presence in Mississippi to collect state sales tax from Mississippi customers.
“Frankly, we believe the bill is unconstitutional,” Reeves said in a meeting with reporters Monday. “I have yet to hear from one lawyer who thinks otherwise, including many of the House members who voted for this bill. They would tell you the most likely scenario is that if this were to pass, it simply put Mississippi in litigation along with Alabama and other states.”
In 1992, the U.S. Supreme Court ruled that states did not have the right to tax inter-state sales, including internet sales. Reeves cited the case Monday, calling any revenue from the House bill “fake money” and “cannot be spent until the U.S. Supreme Court says it can be collected.”
Reeves also said the bill, if passed, would have transferred $40 million of revenue collected annually by an existing use tax on internet purchases from companies inside Mississippi.
“We don’t think this is a very good time to be transferring this $40 million out of the general fund,” Reeves said.
House Speaker Philip Gunn publicly supported the bill, citing the need for new revenue for roads and bridge repairs in the state.
“We don’t have anything to add at this point. Let’s see what happens once the deadline hits tomorrow,” said Meg Annison, spokeswoman for Gunn, after Reeves’ announcement. “We in the House are seeking a solution for our roads and bridges.”
Gunn, in a statement to Mississippi Today on Friday, urged the Senate to consider the bill, calling it “the last train out” for infrastructure repairs this session and was “the best long-term opportunity we have to do something for roads and bridges.”
Reeves, despite killing the House bill this week, said he does intend to focus on finding additional funding for roads and bridges.
“It is worthy of a discussion and talking about the need and desire (for infrastructure improvements),” Reeves said. “But should we transfer general fund dollars into another fund for roads and bridges, we ought to be above board.”
Proponents of the bill said the proposal would level the playing field for the state’s small business owners and brick-and-mortar stores and could provide new revenue for the state’s roads and bridges.
But opponents of the bill, including several Senate leaders, point to Washington, where Congress continues to consider whether states have the right to tax sales on the internet. The U.S. Constitution gives Congress the authority to regulate interstate commerce.
Last week, Senate chairmen Sen. Terry Burton, R-Newton and Senate Pro Tempore, Sen. John Polk, R-Hattiesburg, and Fillingane all told Mississippi Today they doubted the bill would pass.
“Traditionally, I’d say the leadership here in the state Senate has focused on cutting taxes to make the business environment more friendly in Mississippi as opposed to raising taxes or creating new taxes that would create the opposite effect,” Fillingane told reporters on Monday.
Rep. Trey Lamar, R-Senatobia, author of the bill, estimated the new tax would generate between $50 million and $150 million per year. Gunn, in an interview with reporters in early February, said his office’s estimates were between $75 million and $125 million.
Provisions in the bill call for 70 percent of the funds to be used for roads and bridges; another 15 percent would go to counties for local roads and 15 percent would be distributed to municipalities to address their road needs.
Experts within the past several months directly cautioned Mississippi lawmakers against implementing the internet sales tax.
Last fall, Gunn and Reeves brought in an economist from Washington-based Tax Foundation, who answered multiple lawmakers’ questions over several different group sessions about the potential for a Mississippi internet sales tax.
Economist Nicole Kaeding said the Tax Foundation’s stance on the issue is that Congress should regulate sales on the internet because they are considered interstate sales, and she cited potential legal problems if the state were to introduce its own legislation on the issue.
“It doesn’t really matter what we pass until Congress does something on a national level,” Burton said last week. “I don’t think we can force anyone in the state to pay internet sales tax until we know what we can legally do on the state level.”