Like the old Fram oil filter commercial promised, we can pay now or pay later – but I’m not talking about oil filters. I’m talking about foregone sales tax revenues. Mississippi taxpayers are facing future pain at the state and local levels if current policies don’t change.
Commercial real estate firm Cushman & Wakefield project that nationally over 12,000 retailers will close in 2018, up from about 9,000 in 2017. Familiar retailers like Sears and J.C. Penney have already shuttered stores in Mississippi.
With fewer retail outlets collecting state sales taxes, the reduction likewise accrues to sales tax diversions from the state to local governments. The numbers already point to significant impact in Mississippi as in the rest of the country.
In Fiscal Years 2016 and 2017, sales tax collections accounted for 38 percent of the state’s General Fund receipts as the State Department of Revenue collected $2.062 billion in sales taxes in FY 2016 and $2.055 billion in 2017. 20 years ago, that percentage was 41 percent.
While the $9 million decrease in total sales tax collections might at first blush appear incremental, it’s not. Historically, since the inception of Mississippi’s sales tax during the Great Depression, state lawmakers have counted on steady growth in sales tax collections as a bedrock of state government finance. Now, that growth is incremental, less than one percent.
The fact is that the combination of exponentially increasing online and remote sales, decreasing bricks-and-mortar retailers, and the failure of Mississippi to adopt new sales and use tax collection laws that acknowledge the fundamental change in the shopping habits of the state’s taxpayers leaves Mississippians facing hard choices.
The National Conference of State Legislatures estimates that nationally, uncollected sales and use taxes from remote sales total a staggering $26 billion.
Decisions by the Mississippi Legislature to adopt sweeping business tax cuts while failing to address the “flat lining” of the state’s largest single source of General Fund revenues – sales taxes – places our state on a fast track for significant reductions in state services in lieu of the creation of additional revenues sources.
Lawmakers are well aware of the situation. During the 2017 legislative session, there was robust discussion of the “unconstitutionality” of efforts to collect Mississippi’s long dormant use tax on online sales — with that claim based on the precedent of the Supreme Court ruling in the 1992 Quill vs. North Dakota case, which held that states generally could not collect sales taxes from a seller that did not have a physical presence or “nexus” in that state.
That argument may well be headed for resolution. On Jan. 12, the Supreme Court announced that it will hear a South Dakota case that could reverse the Quill decision and allow states to require all online sellers to collect sales taxes.
South Dakota and 35 other states have asked the high court to in South Dakota v. Wayfair to declare that the “nexus” or “physical presence” rule is outdated and punitive to bricks-and-mortar retailers at a time when Americans are increasingly doing their shopping online.
Justices Anthony Kennedy and Neil Gorsuch have each expressed doubt about the fairness of the Quill decision, which suggests a solid chance for reversal of the Quill decision.
Alabama, Florida, Georgia, Louisiana, Tennessee and Texas legislators have all taken steps to level the playing field for their bricks-and-mortar retailers trying to compete with mega-online retailers. Mississippi lawmakers can and should follow suit. Perhaps with political cover from the Supreme Court later this year, they finally will.