Wayfair (economic nexus) bill gets Senate floor time
MARCH 12, 2020 - The Missouri Senate debated an economic nexus bill, Senate Bill 648, that would allow Missouri state and local governments to collect use taxes, similar to sales taxes, on internet sales made to Missouri customers from sellers outside the state. NOTE: The most current version of the bill is different from the summary shown at the link provided. SS#2, 3422S.14F is the current version of the bill.
Until the Wayfair v. South Dakota U.S. Supreme Court decision on June 21, 2018, states and local governments were prohibited from requiring businesses located outside their borders to collect and remit sales or use taxes if the business lacked sufficient contact with the state, also called "nexus." A previous U.S. Supreme Court decision in Quill Corp. V. North Dakota (1992) affirmed an earlier decision in National Bellas Hess v. Department of Revenue (1967) that "economic presence" did not provide sufficient nexus. The Court found at that time only physical presence such as a business location, warehouse, or employees would establish sufficient nexus to require the business to perform that collection and remittance responsibility.
That all changed when the Wayfair v. South Dakota decision held that South Dakota was able to enforce a sales tax collection requirement on vendors with no physical presence in the state, provided certain conditions were met, including ease of administration of the tax and appropriate thresholds to eliminate the burden on the smallest businesses. In this decision, the Court recognized the concept of "economic nexus."
The Wayfair decision set off a race by state governments to enact legislation designing a collection and remittance requirement that would comply with the decision. To date, all states except Missouri and Florida have addressed the issue in some way.
Sen. Andrew Koenig, long a thought leader on taxes in the Missouri Capitol, sponsored SB 648, the bill that was discussed at length in the Senate yesterday afternoon and evening. The bill would establish a $100,000 gross receipts threshold, includes marketplace facilitator language to address "pass-through" sales made through websites, requires a rate database and taxability matrix to be provided by the Missouri Department of Revenue to taxpayers and to "certified service providers" (CSPs) and allows the state to contract either directly with such CSPs or to negotiate such contracts as part of the larger Streamlined Sales Tax group of states. CSPs would take on the collection and remittance responsibility for their customer businesses and would provide a level of certainty and protection for those businesses. The Streamlined organization recently established a process allowing states, like Missouri, that do not conform to the Streamlined Sales and Use Tax Agreement to take advantage of their central registration and negotiated CSP compensation rates.
Nearly the entire hours-long debate involved how to spend the new money that would be generated by the bill. Governor Mike Parson, in his State of the State Address called for some of the money to be placed in a cash flow fund and the remainder used to pay down state debt. Other ideas that have been discussed this session include reducing the state income or state and/or local sales tax rates, enacting an Earned Income Tax Credit, and expanding the property tax credit for some taxpayers.
After much discussion and many amendments, the bill sponsor paused debate on the bill and the legislature concluded the week without passing the bill. The Missouri Senate will not be meeting next week due to the coronavirus outbreak and will also not meet the following week due to a scheduled Spring Break. Work on the bill is expected to resume when they are back in session.
Associated Industries of Missouri supports addressing this issue as Missouri's current law allows internet retailers to compete with Missouri retailers unfairly as many such sellers do not collect and remit the state's use tax. We applaud Sen. Koenig's extraordinary efforts to find a workable compromise. More to come as this topic develops...