Remote nexus scores final victory in last holdout state

With the recent enactment of its economic nexus legislation, Missouri has become the last of the “Wayfair dominoes” to fall.

When the Supreme Court issued its decision in Wayfair v. South Dakota nearly three years ago — June 21, 2018 — many states hurried to pass legislation taxing remote sales into the state. Among the holdouts were Florida and Missouri. Florida passed its own economic legislation, which Governor DeSantis signed April 19, 2021, leaving Missouri as the only state imposing a sales tax that did not have such legislation. On the last day of its legislative session, May 14, 2021, Missouri passed a bill requiring remote sellers and marketplace facilitators to collect sales tax. Governor Mike Parson is expected to sign the measure within days.

“The legislation is monumental,” said Scott Peterson, vice president of U.S. Tax Policy and Government Relations at Avalara. “I anticipated that they would do this. But I also anticipated that it would happen last year, and the year before.”

Why did Missouri get on board so late? The hangup had to do with politics, complications that changes in sales tax law would bring, and the changes in tax policy that would need to occur, according to Peterson. “Politically, a majority of the legislature didn’t want to increase taxes or take action that looked as if they were increasing taxes,” he said.

“Next, Missouri has always been tied to the Streamlined Sales Tax Initiative,” he said. “It’s not that they didn’t want to join SST or want to streamline — it was that the changes they would have to make were greater than what they thought they had the ability to do. They wanted uniformity and simplicity, but the task at hand was too much.”

The last reason was a tax policy issue.

“SST is all about uniform definitions,” remarked Peterson, who was former director of sales tax for South Dakota, and executive director of the Streamlined Sales Tax Governing Board. “When you change definitions, you change what is and what isn’t taxable. And that’s a sticking point for states agreeing to join SST.”

Missouri has by far the greatest number of local taxing jurisdictions in the U.S., Peterson observed. “That’s one thing they struggled with. Of over 14,000 local jurisdictions in the U.S., more than 2,000 of them are in Missouri. All of these have a sales tax, but while the state has a use tax, almost none of the local jurisdictions have a use tax, so out-of-state retailers would have to collect tax at the state level but not the local level.”

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The legislation goes into effect on Jan. 1, 2023. “The sole purpose of the delay is to give local jurisdictions enough time to have elections and implement a use tax,” Peterson remarked. “This is unusual. The elections will happen one at a time, and each will have an impact on how retailers comply with the sales tax requirement.”

Iowa does not have a local use tax, but its legislature ignored it when they did their economic nexus bill, he explained. They passed statewide legislation requiring that remote sellers had to collect state and local sales tax across the board.

“The language of the bill requires the state Department of Revenue to cooperate with Streamlined Sales Tax and contract with them to use a central registration system, as well as the Certified Service Provider program,” Peterson said. The Certified Service Provider program is the technology solution provided by the SST to perform the seller’s sales and use tax function.

“This was created 21 years ago,” he said. “We thought the best way to provide simplicity for retailers in sales tax was to not have them do it in the first place. The CSP partners with the state to provide free sales tax compliance to retailers. Not all states that utilize CSPs are members of the SST Agreement — there are 24 streamlined states, while 27 states utilize the CSP program.”

“The enactment of Missouri’s remote nexus law, the final domino to fall in the states’ reaction to the Wayfair decision, means that tax simplification and tax conformity have actually won,” Peterson said.

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Online sales tax State taxes South Dakota v. Wayfair
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