Ruling OKs online tax collection, could lead to special session on infrastructure

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The decision by the United State Supreme Court to allow states to require online retailers to collect sales tax (actually use tax) for them could lead to a special session of the Mississippi Legislature.

Republican Gov. Phil Bryant had said in May he might call a special session if the Supreme Court overturned a 1992 ruling that said the states could not mandate retailers to collect the tax unless they had a physical location in that state.

The Supreme Court overturned that ruling in a 5-4 decision announced Thursday.

Mississippi collects a 7 percent tax on the sale of most retail items. Laws will not need to be changed to enable the state to collect the tax on online retailers.

Mississippi Today

Sen. Hob Bryan, D-Amory

“There is no need for the state to do anything,” said Sen. Hob Bryan, D-Amory. “We have a law that allows us to collect the use tax from pretty much everybody who moves. … The courts were preventing us from doing that.”

Mississippi’s current law, which was blocked by the 1992 Supreme Court decision, requires companies without a brick and mortar presence in the state that had sales of more than $250,000 the prior 12 months to collect the tax, said Kathy Waterbury, a spokesperson for the Department of Revenue.

“We don’t anticipate any change for DOR,” Waterbury said in an emailed response. “Law and regulations are in place. We register new companies every day, so nothing new there. Taxpayers can register, file and pay online.”

What could be at issue in a special session is where the funds possibly freed up by the Supreme Court ruling should go. Under current law, the funds go to the state general fund that provides revenue for education, health care, law enforcement and some other major agencies. But the Department of Transportation is not funded through the general fund, but through specific taxes – primarily the tax on motor fuel.

The governor and others have talked about diverting use tax revenue collected from online retailers to transportation to deal with major infrastructure needs on both the state and local levels.

While Bryan and others acknowledge the state has major infrastructure needs, they say the online use tax revenue is needed to help deal with inadequate funding for education and in other areas because of major tax cuts passed by the Legislature.

There also is a question of how much new money the state will receive because of the Supreme Court ruling. In early 2017, Revenue Commissioner Herb Frierson reached an agreement with many major online retailers resulting in them collecting the 7 percent use tax on the items they sell to Mississippians and remitting that revenue to the state.

For the fiscal year, which ends June 30, the state has collected $318 million in use tax revenue with $63 million of that amount voluntarily collected by online retailers. There are about 22,000 use tax collectors, with 2,160 of that total being voluntary collectors prior to Thursday’s Supreme Court ruling. Of that number, 1,350 have remitted use tax collections to the state this year.

An earlier study by the University Research Center estimated that during 2016 the state would have collected between $105 million to $122 from online retailers if the 1990s Supreme Court ruling had not been in place.

Mississippi Attorney General Jim Hood whose office was active in challenging the 1990s’ Supreme Court ruling, said Thursday: “Today’s ruling is a victory for our Main Street merchants in Mississippi. It puts them on a level playing field with large, out-of-state and international corporations. We attorneys general have been extremely successful in convincing the United States Supreme Court that the United States Constitution protects the states from federal legislative and judicial overreach. I don’t think I have lost on any of these cases where huge international corporations try to use our Congress or federal courts to preempt state laws designed to protect our consumers and state laws.”

The governor has indicated that he would like to have agreement from the legislative leadership before calling a special session to deal with transportation issues, including transferring the internet tax collections to infrastructure needs.

Of the ruling, Laura Hipp, a spokesperson for Lt. Gov. Tate Reeves said:  “The constitutionality of collecting online sales tax from out-of-state retailers has always been an issue for either the U.S. Supreme Court or Congress to decide, and today the justices chose to level the playing field for retailers across Mississippi. Lt. Gov. Reeves looks forward to continuing conversations with Gov. Bryant and Speaker Gunn on how this policy should look for Mississippi and its communities and how to prioritize the revenue generated on state needs”