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Mitchell: State Can Increase Taxes Without Tax Increase

Close your eyes. Imagine being a politician in a cash-strapped state. Imagine your people — those who voted for you based on your firm stance against tax increases — are going to be hit up for another $100 million every year. Imagine you get the money to spend as you wish, but your purity is intact. They can’t blame you in the slightest.

Open your eyes. It isn’t a dream. It’s real. And, for lawmakers, it’s better than an ice cold slice of Smith County watermelon plus a bowl of homemade peach ice cream on a July afternoon.
Here’s the story: Since state sales taxes were conceived, the rule has been that states could tax retail transactions within their borders. Say a Batesville resident buys a sofa in Memphis. The sofa sales tax is paid to Tennessee, not Mississippi. Similarly, when an Indiana resident stays in a Biloxi motel, Mississippi collects taxes on the room. In theory, it balances out to tax sales based on where sales take place as opposed to the residence of the payor.
There have been a couple of exceptions.
Big ticket items, such as cars, are subject to special tax laws. Our Batesville resident will have to pay a Mississippi tax if she buys a Kia in Tennessee.
Another special rule existed for what was “mail order” and is now “e-commerce.” Sears, for example, once sold a lot of goods Mississippians chose from a catalog and had delivered by the Postal Service. But because Sears also had retail stores in Mississippi and every other state, the company did collect and pay over sales tax on mail orders. Having a physical presence in the state, courts agreed, established the “minimum contact” necessary to require the company to collect state taxes. That remained the general rule for a long time, and it was affirmed as the law of the land by the U.S. Supreme Court as recently as 1992.
But no more.
Before going on holiday at the end of June, the court recognized that the world of commerce has forever been changed by the internet. In a long-awaited decision, the minimum contact doctrine was dispatched to the dustbin of legal history. It no longer matters where a seller is located or where a transaction takes place, the home state of the buyer will be able to tax the transaction.
Why? According to federal e-commerce reports, 99.5 percent of all transactions took place face-to-face in 1999. By the first quarter of this year, the face-to-face sales declined to 90.6 percent. Buying and selling in the digital realm increased to $122.6 billion for those three months. The trend toward more online purchasing has been steady and shows no sign of reversing.
Now the states where customers live have already been collecting some sales taxes — about a third — by a variety of mechanisms. With the court’s blessing, all e-commerce is now taxable.
From a political perspective, that’s heavenly. Mississippians’ collective pockets stand to become an estimated $100 million lighter, but the diehards in power can humbly and accurately point out they did not raise taxes. All they will do is accept the Supreme Court’s decision in the name of fairness.
It will be the correct and long-past-due thing to do.
Commerce is ever-changing.
After World War II, larger Mississippi towns boasted a couple of chain stores — Sears, J.C. Penney, Walgreen’s. Otherwise, most retailers — clothing, jewelry, hardware — were family businesses. Some were multi-generational. Many were founded by veterans returning from service. Malls followed with franchised stores and eateries. Next came the big boxes.
Most purchasing is still local and likely will always be, but there’s no rational basis to allow an out-of-state seller a price advantage over a Mississippi seller. Soon, any big-screen TV ordered on the internet will be subject to the same 7 percent general sales tax that would be due if purchased locally.
Collecting the tax will involve high math, sophisticated software and constant adjustment. There are thousands of different sales taxes and exemptions in America.
Another open question is whether Mississippi will share a portion of the new revenue with municipalities as it now does based on sales within cities and towns. Counties, of course, will want some of the money, too.It will not be simple to put all of this in place.
Equitable taxation is what the Supreme Court has authorized. It’s a step Mississippi must and will take. And it’s kind of fun watching all the “no new taxes” crowd so happy about a new tax when they don’t have to shoulder the blame.

Charlie Mitchell mugshot 2014Charlie Mitchell is a Mississippi journalist. Write to him at cmitchell43@yahoo.com.

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