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Mississippi cities missing out as use tax revenues increase due to online sales

While Mississippi cities are benefiting from increased sales tax revenue, revenue from a tax that isn't disbursed to municipalities is on the rise thanks to online sales.

Mississippi levies two taxes on sales: a conventional sales tax and a consumer use tax. Taxpayers are supposed to pay a 7 percent use tax individually on all purchases from out-of-state firms, which also is the same rate as the state’s sales tax. The key difference between the use tax and the sales tax is that municipalities receive a chunk of the revenue from the sales tax, while most of the proceeds from the use tax go to the state’s general fund.

Since 2006, sales tax disbursements to municipalities has increased 14 percent, according to data from the Mississippi Department of Revenue, while overall sales tax revenue has grown 11.6 percent.

However, that upward change could be due for a downward move due to the changing habits of U.S. consumers. According to the U.S. Census Bureau, e-commerce sales have increased since 2008, both in dollars and in the percentage of all retail sales. E-commerce sales increased 6.9 percent in the second quarter of this year from the first quarter, an increase of 16.3 percent from the same time last year.

Municipalities don't even get a cut when a customer buys a product online for pickup at a local store According to Meg Bartlett, the associate Department of Revenue Commissioner for business taxes and ABC, that is still considered use tax even though the store collects it as if it were sales tax. Bartlett also said that it would require legislative action for the policy on the state's use tax revenues to be shared with municipalities.

States are prohibited from forcing out-of-state retailers without a physical location such as a store or a warehouse in their boundaries from collecting sales tax by the 1992 U.S. Supreme Court decision Quill Corp. v. North Dakota. This decision said retailers are required to have a physical presence in a state before it can levy sales taxes on them.

Online retailers such as Walmart and Target that have stores in the state collect the state's 7 percent use tax from customers, whereas those that don't have a physical presence don't.

That might be about to change. The DOR plans to implement, through administrative rules, an internet sales tax regulation that would force out-of-state sellers to collect the 7 percent sales tax. The DOR has repeatedly acknowledged that such a tax would likely draw a legal challenge because of the Quill decision.

In an economic impact statement released on the Secretary of State's website on October 10, the DOR says that not having an internet sales tax is causing "erosion of the tax base for sales and use taxes for the state of Mississippi resulting in lower sales and use tax collections." The DOR also says that the state is missing out on $150 million annually and that not collecting the tax gives out-of-state retailers an unfair advantage.

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