After the dust settled on the implosion of the dot-com bubble in the early 2000s, bookstore owner Richard Howorth remembers one of his elected representatives singing the praises of one the companies that emerged after the collapse:

When asked whether Congress should require online retailers to charge tax, U.S. Sen. Trent Lott, then the majority leader, said his wife had recently done her Christmas shopping online: “It came the next day already wrapped, the next day to Pascagoula, Mississippi. That’s pretty incredible, I think. And I like the fact that it was cheaper because it wasn’t taxed,” he said at a U.S. Chamber of Commerce event.

That could be changing soon in Mississippi if current plans to charge an online sales tax moves forward as planned. The Department of Revenue proposed the change after years of hand-wringing, political debate and pressure from Mississippi’s business community, including local independent businesses.

Revenue officials say online businesses are already obligated to collect and pay state sales tax. State law says people doing business with the state are obligated to collect taxes when “purposefully or systematically exploiting the consumer market provided by this state by any media-assisted, media-facilitated or media-solicited means including, but not limited to, direct mail advertising, unsolicited distribution of catalogues, computer-assisted shopping, television, radio or other electronic media, or magazine or newspaper advertisements or other media.”

The proposed rule change, scheduled to take effect in December, clarifies what is meant be “purposefully or systematically exploiting the consumer market,” said department spokeswoman Kathy Waterbury.

Howorth, who opened Square Books with his wife, Lisa, in 1979 responded to Lott’s Amazon comments with an oped in the Clarion Ledger. Howorth recalls: “I said it was unfair to existing businesses, mom-and-pop businesses and especially those in the senator’s home state and that he ought to be trying to buy his Christmas presents from a Mississippi business and not somebody headquartered in Seattle that provided no jobs in Mississippi and no tax support for schools and police.”

Retail has changed dramatically over the past nearly two decades. For one, e-commerce sales now comprise almost 10 percent of all retail sales compared to less than 1 percent in 2000, information from the Federal Reserve Bank of St. Louis shows. Amazon is now also one of the world’s largest retailers and most valuable companies; its founder, Jeff Bezos, is one of the world’s richest people.

With all that cash flying through the innerwebs as government coffers have withered, many states have been under mounting pressure to come up with ways to raise cash from internet sales. That includes Mississippi, where, as proposals to charge an online sales tax have faltered in recent years, the revenue department announced in January that Amazon, which has more than half of all online retail transactions, would charge its Mississippi customers the 7 percent state sales tax rate.

In the meantime, the state revenue department has announced new rules to require all companies lacking a physical presence and with sales over $250,000 per year in Mississippi to collect sales tax.

“Sales origination from out of state have steadily increased over the years attributing to the erosion of the tax base for sales and use taxes for the state of Mississippi resulting lower sales and use tax collections. This provides an unfair advantage to out of state businesses from outside Mississippi,” revenue department officials write in an economic impact statement on the new rules.

Currently, some businesses voluntarily pay online sales tax generating about $40 million for the state treasury. A 2014 report from the National Conference of State Legislatures estimates that  Mississippi loses out on $303 million in revenue by not charging e-commerce taxes; nationwide, the report concludes that states leave $23.3 billion on the table in uncollected taxes.

The change has minimal impact on small, out-of-state businesses, according to the statement. Supporters of the move say it will not only help raise badly needed cash but put brick-and-mortar stores on par with Internet leviathans. For a business like Howorth’s, where profit margins hover in the 2 to 5 percent range, eliminating Amazon’s 7 percent advantage could be significant, he said.

Lt. Gov. Tate Reeves asks a question of an agency head during legislative budget hearings on Thursday. Credit: Rogelio V. Solis, AP

However, not everyone agrees that the move is all upside. During the 2017 legislative session, the House passed a bill that would have required 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.

It was dead-on-arrival in the Senate, with Republican Lt. Gov. Tate Reeves calling the the legislation unconstitutional. Asked about the revenue department’s decision to start collecting the tax, Reeves told Mississippi Today: “Currently, it is illegal to impose a tax on Internet sales based on U.S. Supreme Court decisions … There are several states currently in litigation seeking to overturn these decisions and allow sales taxes on purchases made over the Internet. I see no reason for Mississippi to act unless or until either the Supreme Court changes its mind or Congress acts to authorize a sales tax on Internet purchases.”

Russ Latino, state director for Americans for Prosperity, a national organization that advocates for conservative fiscal policies, and who has Reeves’ ear, agrees with the lieutenant governor’s assessment, adding that the revenue department overstepped it’s authority

Russ Latino

“The legislature declined to pass an almost identical law this year because it was unconstitutional. DOR should not be trying to circumvent our Constitution and the will of the people’s representatives for the chance to take a few more dollars out of citizens’ pockets. I fear all they’ve really done is set up yet another lawsuit that Mississippians will have to pay to defend,” Latino said.

Asked if his group is eyeing a legal challenge to block the law from going into effect, Latino said the group is looking at all options.

Even though the holiday shopping season is upon us, Howorth won’t be using the coming online sales tax rule to lure customers into Square Books.

“People who buy books are pretty bright. They know that when you buy from a locally owned business your dollar has greater strength and it’s going to affect our own community in a much more positive way than if you spend it out of state,” he said.

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Ryan L. Nave, a native of University City, Mo., served as Mississippi Today's editor-in-chief from May 2018 until April 2020. Ryan began his career with Mississippi Today February 2016 as an original member of the editorial team. He became news editor August 2016. Ryan has a bachelor’s in political science from the University of Missouri-Columbia and has worked for Illinois Times and served as news editor for the Jackson Free Press.