Local businesses and business groups praised a decision Tuesday by the U.S. Supreme Court that could allow Missouri to collect sales taxes from online purchases.
The Supreme Court overturned two longstanding rulings Tuesday by allowing states to collect sales taxes from retailers without a physical presence in a state. Retailers hailed the move and hope it will help brick and mortar stores.
The ruling upheld a 2016 South Dakota law that requires online merchants with more than $100,000 in annual sales or 200 transactions with state residents to collect sales tax. David Overfelt, president of the Missouri Retailers Association, a Jefferson City trade group which represents retailers across the state, said that the move likely means the Missouri Department of Revenue can begin collecting state sales taxes of 4.225 percent from internet purchases without new legislation being passed.
"I think (the Revenue Department) could collect now, but would have to be very cautious and follow the guidelines in the law with regard to small internet retailers," Overfelt said.
For years, Overfelt and the group advocated for a state law requiring the state to collect sales taxes on online purchases. In 2013, the state passed a law that required businesses that received referrals from affiliates in the state to pay sales taxes on internet purchases. Retail advocates may not be quite to the finish line though.
Joel Walters, Missouri Department of Revenue director, said in a statement that legislation will likely need to be passed by the General Assembly before the Revenue Department can collect revenue on internet sales.
"This creates opportunities for Missouri, as it does other states, to consider legislative and administrative action in a very different tax policy world," Walters said. "There will be a prolonged period of uncertainty as the U.S. Congress and individual states assess next steps and take a range of potential actions."
In 1967 and in 1992, the high court ruled that companies without a physical presence in a state did not have to collect sales taxes. Those rulings applied mostly to mail-order catalog companies.
South Dakota noted in the case that times have changed since the court made those rulings. Online sales taxes are growing at four times the rate of retail sales in the 45 states that collect sales taxes, South Dakota also noted in the case. Retailers like Wayfair and Overstock.com, which challenged the law, told the court they may need to collect sales taxes from 12,000 taxing jurisdictions if the court allowed states to collect sales taxes from online sales.
Online sales made up 9.3 percent, or $123.7 billion, of the $1.3 trillion in U.S. retail sales conducted during the first quarter of 2018, according to the U.S. Census Bureau. The non-partisan think-tank the Missouri Budget Project noted a recent analysis conducted by the U.S. Government Accountability Office found Missouri misses out on $180 million-$275 million annually in state and local taxes each year from internet sales.
After the passage of the 2013 law, online retail giant Amazon ended a program that paid advertising fees to entrepreneurs which referred customers to Amazon.com. In February 2017, Amazon began collecting sales taxes on purchases made in Missouri as it prepared to open a St. Louis distribution center.
Jerry Cowley owns Cowley Distributing, the company which owns Downtown Book & Toy at 125 E High St. and Downtown Book II and Play 2 Learn at the Capital Mall. Cowley's businesses have a minuscule web presence.
His retail stores don't sell anything online. Another division sells small amounts of books at slightly discounted rates.
Like Overfelt from the Missouri Retailers Association, Cowley thinks the ruling will help even the playing field between small retailers like his and large discount retailers like Amazon. Cowley remains skeptical though. He wonders how the Revenue Department will collect sales taxes from goods sold in the darkest corners of the web from far-flung countries like China and Indonesia.
Even with the ruling, brick and mortar stores like his must still pay for costly overhead expenses like land, rent, utilities and health insurance coverage for employees, which Cowley said many online retailers don't have to pay.
"It is definitely a good deal for us," he said. "I don't know that this alone will even the playing field enough."