For years, states had been prevented from collecting sales taxes on online purchases because of a U.S. Supreme Court ruling that predates the internet. After the court overturned that precedent last year, the Missouri General Assembly is considering legislation to collect sales taxes on retail e-sales.
This seems to be common sense, recognizing the reality that consumers buy more and more goods online these days. The percentage of e-commerce retail sales nearly doubled between 2013 and 2018.
Such collection wouldn’t be a new tax — it would be the same 4.225% state sales tax that we pay on purchases in Missouri stores. From a conservative perspective, each of us would pay our fair share, even on the internet. One group of purchasers (in-store) — and by extension, brick-and-mortar stores — wouldn’t be subsidizing the taxes owed from online sales.
Many shoppers, my own family included, buy online not to avoid taxes, but for other reasons — convenience, selection, price. Some e-retailers, such as Amazon, already voluntarily collect and remit sales taxes. Thus, I’ve heard little pushback from Missourians regarding online collection.
Yet some Missouri legislators are demanding a cut to income taxes in exchange for their support of collecting the existing sales tax on e-retail transactions. They incorrectly believe that collecting online sales taxes means raising taxes, and so the state should lower taxes elsewhere to be revenue neutral. But this misapprehends the situation and doesn’t line up with conservative responsibility.
The sales tax isn’t new: It just hasn’t been collected on online sales because of both technological limitations and a Supreme Court case that didn’t contemplate the new internet-based economy. (In fact, few e-shoppers realize that they’re actually supposed to remit a use tax on certain purchases.)
With e-retail sales increasing, collecting sales tax on those purchases is a matter of fairness, to buyers and sellers alike. Even without a cut to other taxes, it would be revenue neutral. Nobody would pay more or less than they’re supposed to, or that they would not pay on the same purchase in a physical store. If state stewards fail to account for the new method of retail sales, state revenue (and core services) inevitably will decrease.
But still some policymakers insist on a corresponding cut to a different tax — in other words, the state income tax. They say it would be unfair for the state to collect the online sales taxes I owe unless it reduces other taxes I owe. But would it?
Let’s say I visit a downtown restaurant. I pay for parking and go inside for a meal. When I’m through, I hand over my debit card to pay electronically. After some time, the manager informs me that a technical problem on their end prevented the transaction, so my meal would be on the house. I’d be grateful (and lucky). Now let’s say the next time, I go through the same routine, but the equipment works and I’m charged appropriately for my meal. I wouldn’t (and shouldn’t) stamp my foot and demand that the restaurant cut my parking fee because they’re now collecting payment for the meal.
I’m not suggesting a tax increase. A conservative legislature should be cautious, however, even with tax cuts (especially when they’re based on the fallacy that collecting online sales taxes would be a new tax). Missouri income taxes were cut in 2014 and again in 2018 (a measure I supported then as state representative). Fiscally prudent policy would be to see how these recent tax cuts play out over several budget cycles, especially since state revenues have been down. Because the legislature is now considering paying for needed highway and bridge repairs out of general revenue, it would be sensible to make sure we can pay for such undertakings before we decide to cut revenue.
Those of us who neighbor Kansas remember when its Legislature ended up with egg on its face and was forced to raise taxes in 2017 after the 2012 tax cut didn’t pan out as intended. If Missouri were to make a similar mistake, it couldn’t bail itself out. Under the state’s constitution, the General Assembly can lower taxes, but it cannot raise them except by a small amount. So lawmakers may be wise to temper their immediate zeal to make “tax cut” headlines with a conservative, longer-term approach that considers the health of the state’s budget beyond the next election cycle.
Republican Kevin Corlew represented District 14 in the Missouri House of Representatives from 2015 to 2018.