Since a June 2018 U.S. Supreme Court ruling allowing states to collect taxes on internet sales, Mississippi’s use tax collections have steadily increased.
Still, state Economist Darrin Webb and Mississippi’s other financial experts are projecting use tax revenue going to the general fund for core state functions such as education, law enforcement and health care will slow or even be less this fiscal year. Through November, or through the first five months of the current fiscal year, use tax collections going to the state general fund are down $3.5 million to $117.7 million, according to information compiled by the staff of the Legislative Budget Committee.
Use tax collections for core functions of state government are down because they are being diverted to local governments, according to the financial experts who give the Legislature projections of how much revenue the state will collect.
“Use tax collections will be reduced from increased diversions for infrastructure needs associated with the special session of 2018,” Webb told legislative leaders and Gov. Phil Bryant in November.
Webb is citing legislation passed during the 2018 session to divert use tax revenue from paying for those core state functions to paying for local needs. During the special session, legislators, hoping to avoid raising the tax on motor fuel to pay for infrastructure needs, voted to phase in the diversion of 35 percent of the use tax revenue from those core state funds to local needs. When fully enacted, the diversion will send about $120 million annually (an amount that will grow over time) from state needs to the local governments.
The use tax is a 7 percent tax levied on items purchased out of state, such as on internet or catalog sales. The primary reason the use tax is growing is that in June 2018 the U.S. Supreme Court ruled that states could levy a sales tax (or use tax) on internet purchases.
The Supreme Court decision was a key because in recent years sales from traditional brick and mortar stores have slowed or even decreased. In recent years, sales tax revenue has slowed while use tax revenue in general has exploded, though, the sales tax collected from retail stores remains Mississippi’s single largest source of revenue.
A late October report by Wells Fargo Securities Economic Group projected, “For the first holiday season ever, non-store retailers will likely surpass grocery and general merchandise stores, accounting for the largest share of holiday spending .”
For the past fiscal year, ending June 30, use tax collections for the state were up 24 percent to $419.6 million while sales tax collections were up 2.6 percent to $3.2 billion. Sales tax collections also are growing at a 2.6 percent rate through November – the first five months of the current fiscal year.
Thus far this fiscal year, use tax collections are up 8.9 percent to $173 million. But a larger portion, is being diverted to pay for local services instead of state services.