Missouri and Kansas could see a sales tax windfall. Don't spend it all in one place
State and local governments have reacted with predictable glee to the Supreme Court's recent decision allowing states to require sales tax collection by all internet retailers, even those without a physical presence in the state.
Many online retailers are already collecting sales taxes, but some are not. The court's ruling suggests state governments can now aggressively pursue those sellers, producing a likely windfall for their coffers.
It's serious money. The Government Accountability Office said last year that Missouri might collect an additional $275 million each year through "expanded tax collection authority." Kansas could add $170 million a year, GAO said.
But the new revenue isn't limited to states. Cities such as Kansas City collect sales taxes and would also benefit. So would counties. "This is huge news for KCMO and potentially every city in the country," Kansas City's city manager's office tweeted Thursday.
It seems almost like a free lunch: more tax revenue without raising taxes.
Like all free lunches, though, there are dangers. States, cities and counties should proceed carefully before spending the extra cash.
The estimates might be overblown, for one thing. Once every retailer starts collecting online sales taxes, fewer things might be sold online. An economic slump might mean fewer sales and less sales tax revenue.
Collecting the additional taxes will be complicated. A small hardware company in New York might need to calculate hundreds of sales tax rates for different online customers. It will take some time to sort all of that out.
And the states may need to enact specific legislation to collect online sales taxes. That, too, will likely delay any immediate bump in tax revenue.
Once those concerns are understood, the use of any extra money seems obvious. Kansas and Missouri should use any windfall to first reduce the tax burden on the poor and working class.
That's particularly true in Kansas. One of the nastiest holdovers from the Sam Brownback years is the continuing collection of a 6.5 percent state sales tax on food, one of the highest such levies in the nation.
The first use of any additional sales tax money in Kansas should be used to reduce the tax on food. The additional revenue might also make it easier to fully fund the state's public schools or reduce debt.
Missouri taxes some food at a reduced rate. It could use any additional funds to expand Medicaid in the state, making health care more accessible for the working poor while allowing the state to claim millions of dollars in additional federal revenue. Rural hospitals would benefit, as well.
Cities and counties must be careful, too. Always remember, sales taxes are regressive. They're not based on one's ability to pay. That means they should be considered carefully and adjusted when possible to help those least able to afford them.
The Supreme Court's decision will bring a more level playing field to retail sales. The new revenue should not be wasted by state and local governments that are all too eager to spend every penny.
This story was originally published June 22, 2018 at 6:18 PM with the headline "Missouri and Kansas could see a sales tax windfall. Don't spend it all in one place."