U.S. Supreme Court ruling may eliminate need for use tax

Monday, June 25, 2018 ~ Updated 10:59 PM

Missouri’s local governments may no longer have to rely on voter-approved use taxes to collect sales tax on online purchases from retailers outside their jurisdictions.

The U.S. Supreme Court, in a 5-4 decision, on Thursday overruled a pair of decades-old decisions that made it difficult for states to collect sales tax from online businesses that didn’t have a physical presence in their states.

Under the ruling, states can pass laws requiring out-of-state sellers to collect sales taxes.

Richard Sheets, deputy director of the Missouri Municipal League, said Friday he believes the ruling applies not only to state governments, but also to city and county governments.

The high court’s ruling made it clear online purchases constitute taxable retail sales just like those transactions that occurred in brick-and-mortar stores and businesses housed in a state.

As a result, Sheets said local governments should be able to levy their various sales taxes on all online purchases without having to seek voter approval of a use tax.

That could be good news for the cities of Cape Girardeau and Jackson, which have been unable to pass use taxes.

“It is a hard tax to explain,” Sheets said.

He said Missouri’s lawmakers would have to write legislation governing the collection of taxes on online purchases. He predicted state lawmakers will file several bills in the 2019 legislative session on this issue.

Cape Girardeau Area Chamber of Commerce president John Mehner called the high court’s decision “a great ruling.”

Not only could it mean increased tax revenue for local governments, it also will level the “playing field” for local businesses, which have had to collect sales tax while their online competitors have not had to do so, Mehner said.

Local business owners, who collect the sales-tax revenue needed to fund services by local governments, have long complained about unfair competition from ever-growing internet retailers.

Jackson Mayor Dwain Hahs said eliminating the need for his city to pass a use tax to generate tax revenue from online sales “would be very nice.”

He added the ruling would make for fairer competition between local businesses and online companies.

Cape Girardeau city manager Scott Meyer said he doesn’t know whether a use tax would still need to be passed in order for a city to collect sales taxes on online purchases. But he said he welcomed the court’s decision because “it’s good for local business.”

The Cape Girardeau City Council and city staff have discussed placing a use-tax measure on the ballot next year, but have not made a decision.

Mayor Bob Fox said the council likely would not put a use-tax measure on the ballot if it appears such a mechanism is not required to tax online sales.

“If legislation will do that, that is fantastic,” he said.

“That could be a great boon for a lot of cities, not just Cape Girardeau,” Fox said.

City officials have voiced concern about flat sales-tax revenue from sales generated by local businesses and the city not having a use tax on growing online sales.

Many cities, including Cape Girardeau, are heavily dependent upon sales taxes to fund government operations.

Cape Girardeau County voters in April 2015 passed a 1 percent use tax. Revenue from that tax will fund a new court building in Jackson.

Roger Hudson, county treasurer, said revenue from the use tax is up more than 29 percent this year. He said the county government expects to receive “well over $1 million” from the use tax by the end of its 2018 fiscal year, which concludes at the end of December.

Hudson said that tax money is being collected only by online businesses that have locations in Missouri. But the court ruling should result in the collection of sales tax/use tax money from all online businesses, he said.

As a result, the county should garner more tax revenue, Hudson said.

While he doesn’t believe the use tax will immediately disappear as a taxing mechanism, Hudson said the court decision could make it easier to collect sales taxes on online purchases.

“In the long run, it will simplify things,” he said.

mbliss@semissourian.com

(573) 388-3641

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