The Missouri Senate held about two hours of debate on SCS SB 46 & 50, sponsored by Senate Ways and Means Chairman Andrew Koenig. The bill would allow the Missouri Department of Revenue to require remote sellers, including internet retailers, to collect taxes on sales made to Missouri customers.
The U.S. Supreme Court cleared the way for states to enact such measures in a decision that reversed decades of sales/use tax law. The Court held that a state that made compliance with its tax laws simple enough and exempted extremely small retailers could force compliance with its tax laws.
While the state at the center of the court case, South Dakota, had modified its sales tax law to conform to a set of standards adopted by 23 states in a Streamlined Sales and Use Tax Agreement, the SCOTUS did not require a state to join that Streamlined Sales Tax group. It only required the state simplify compliance with its tax code and exempt the smallest retailers from tax collection responsibility.
Adopting the standardized agreement would require MANY changes to existing sales tax laws that would impact Missouri businesses, including revising many definitions that have developed long case law histories over time. If these definitions were changed, our fear was that the case law would be reset, requiring more litigation over the exact meaning of the terms. Any of our business members that have ever experienced a sales/use tax audit will know how important this is because DOR auditors regularly disagree with taxpayers over the seemingly simple meaning of terms used in the tax law. And such disagreements are usually accompanied by a large tax bill for the taxpayer!
AIM President Ray McCarty and tax lobbyist Chuck Pierce developed a new idea: require Missouri’s DOR to contract with Certified Service Providers (CSPs) and pay for their services, just as they would under the Streamlined agreement, but don’t make the other changes necessary to fully adopt the Streamlined agreement.
We researched our idea and found CSPs are already providing services to companies located outside Missouri and selling to Missouri customers. We discussed this approach with Senator Koenig and introduced him to representatives of one such CSP. That particular CSP, Avalara, has software that accurately determines whether a transaction is taxable or not and the proper rate to be charged. In fact, their software goes well beyond the basic requirements for determining the correct rate as it converts addresses to latitude and longitudinal coordinates and determines the rate based on those coordinates. This allows them to determine a rate within 30 feet!
The current version of SB 46 includes the CSP requirements and would tax remote sales, including internet sales, as use tax. Use tax is similar to sales tax but is imposed when a seller located outside Missouri sells to a Missouri customer. Although use tax is due from the purchaser under current law, purchasers making purchases of less than $2,000 of goods on which no tax was collected are not required to file a return. The bill will allow the Missouri DOR to require the collection of the use tax by the sellers meeting the threshold in the bill.
Use of a CSP has several advantages for remote sellers, including protection from most liability, determination of the taxability of the item, and determination of the correct rate. Remote sellers would still be responsible for aligning their systems with the CSP system.
The bill would also allow cities and counties that have adopted local use taxes to collect those taxes on remote sales.
The bill also contains other important changes to the tax laws. If you have specific questions, please contact Ray McCarty at rmccarty@aimo.com for more details. The bill will also change through amendments during the Senate debate.
Debate ended yesterday without reaching a final conclusion so debate will resume at some point in the future, possibly next week.
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