Starting December 1, Mississippi will begin forcing out-of-state online retailers to collect the state's 7 percent use tax on goods bought by state residents.
The Mississippi Department of Revenue announced the new tax in a filing on the Secretary of State's website Wednesday, but it will likely draw a legal challenge since it runs afoul of a 1992 U.S. Supreme Court decision. Online sellers with Mississippi sales of $250,000 and more will be required to collect the tax on behalf of Mississippi.
Russ Latino, an attorney and the state director for the pro-economic liberty group Americans for Prosperity, told the Mississippi Independent that the agency was acting outside of its powers when it decided to levy the tax. Two attempts in last year's session by the Legislature to pass an internet sales tax failed.
"What the Mississippi Department of Revenue's attempt to create an internet sales tax is doing is blatantly unconstitutional," Latino said. "It's outside the authority of that agency. The commissioner (Herb Frierson) has admitted it is unconstitutional and the Legislature declined to pass it because it was unconstitutional.
"In an attempt to collect more money out of Mississippians' pockets, the DOR has set up another lawsuit that taxpayers are going to have to defend."
Latino said a lawsuit to stop the tax would likely be filed before December 1 — when the tax is scheduled to go into effect — and attorneys would likely ask a judge for an injunction to stop the tax's implementation.
The key argument in any legal challenge for Mississippi's coming internet sales tax is based on a key principle. In Quill Corp. v. North Dakota, the court ruled that 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. This decision said retailers are required to have a physical presence in a state before it can levy sales taxes on them.
That's why retailers such as Walmart and Target that have stores in Mississippi collect the state's 7 percent use tax, whereas other online retailers without a physical presence in the state didn't.
Similar laws in Alabama and South Dakota have already drawn legal challenges. The South Dakota Supreme Court struck down its law in September because it conflicted with the Quill decision and an appeal with the U.S. Supreme Court is likely.