Internet sales tax collection begs for a fix

by J Scott Christianson, Columbia Daily Tribune Columnist

Back in August, Hank Waters opined that purchases made over the Internet should be subject to sales tax. His argument was based on the idea that it is not fair to exempt Internet purchases from taxation when purchases from local retailers are subject to sales tax. Beyond fairness, the impact of tax revenue loss to local and state government was also part of his argument. Waters’ arguments are correct.

Waters’ editorial set off a reaction of letters, Trib Talk calls and an opinion piece from local author and Internet shopping guru Diana Ratliff. Ratliff argued that the imposition of a sales tax on Internet purchases would be an accounting nightmare for budding e-tailers, thereby stifling the growth of Internet commerce and limiting online retail to just the “big boys” — Amazon, Dell and the like.

Ratliff’s arguments are correct. But Waters and Ratliff are incorrect in their assumption that purchases made over the Internet from out-of-state companies are not taxed. The fact is that online purchases made by consumers are subject to tax. However, in lieu of sales tax, such purchases are subject to a consumer use tax. What is weird about this tax is that the retailer is not responsible for collecting it. Instead, it falls on the consumer to report and pay this tax each year.

Currently, the state of Missouri requires anyone who purchases more than $2,000 worth of goods over the Internet — or by mail order or phone — to report and pay a consumer use tax, currently set at 4.225 percent. The $2,000 figure is not an exemption but rather a threshold for reporting. So if you have $2,020 in purchases, you have to report and pay tax on the entire $2,020, not just the extra $20. The tax would be about $85 in this example.

In addition to the state use tax, municipalities can also assess a local use tax on top of the state’s 4.225 percent, just like they can with sales tax. Some 500 Missouri county and city governments have elected to assess a use tax, so if you live in any of those places, the tax on your Internet purchases is higher. The highest amounts are for Missourians living in the Platte County portion of Kansas City (7.975 percent) and in the St. Charles County portion of Wentzville (7.950 percent).

Columbia currently doesn’t collect any such use tax; voters last rejected a proposal to do so in 1998. At the time, it was estimated that…