Mississippi legislators, needing funds in the current session to pay for a teacher pay raise and a possible state employee salary hike, could be boosted by an additional $50 million in revenue thanks to a proposal pending to place more of a burden on online retailers to collect the 7 percent tax on retail items.
The 7 percent tax is paid by the purchaser, but collected for the state by the retailer.
The Marketplace Facilitator Act would require behemoth online retailers such as Amazon or Walmart to collect the 7 percent tax on items they sell for other companies.
Amazon and other large online retailers already collect the 7 percent use tax on items they sell that they own. But the online retailers also sell on their site items owned by other companies.
Mississippi is one of five states that do not require the online retailers to collect the use tax on the items they sell for the other companies.
State Revenue Commissioner Herb Frierson said the estimate is that collecting the tax from the third party online sellers would generate $50 million annually.
“It is not about the revenue,” said Frierson. “It is about having fairness in the marketplace.”
The proposal has passed the House and is pending before the Senate Finance Committee. It has faced limited opposition from those who argue that the proposal would be creating a new tax. But House Ways and Means Chair Trey Lamar, R-Senatobia, argued the bill is ensuing a tax is collected that already is valid under existing law.
For years, a ruling by the U.S. Supreme Court prevented states from forcing so-called remote retailers from collecting the 7 percent use tax. Remote sales include items sold via the internet or through catalogs.
The Supreme Court had ruled the remote retailers did not have to collect the tax for the state unless the retailer had a physical location in that state.
In 2018, the U.S. Supreme Court reversed that ruling and said states could require all remote retailers to collect the tax.
Since then, the state’s use tax revenue has grown significantly. In fiscal year 2017 before the Supreme Court ruling the state collected $234.1 million in use tax revenue compared to $326.4 million in fiscal year 2019.
Through the first seven months of the current 2020 fiscal year, use tax revenue is $208.3 million, up 1.5 percent over the amount collected during the same period in the prior year.
The largest source of state revenue continues to be the 7 percent sales tax on items purchased at businesses within the state. In 2017, the sale tax revenue to the state was $2.06 billion compared to $2.14 billion in fiscal year 2019. In the current fiscal year through February, sales tax revenue is $1.34 billion – up 2.8 percent.
Overall revenue collections to the state through February, which is the first seven months of the fiscal year, are $3.58 billion, an increase of 4.8 percent over the prior year’s collections for the same time period.
A teacher pay raise of $1,000 annually, which will cost $56 million per year, has passed the Senate and is pending in the House. Lt. Gov. Delbert Hosemann, who presides over the Senate, also has said he hopes to pass a state employee pay raise this session.