The Sales Tax Malaise

“It was a surprise for my wife,” the man in the coffee shop was saying. “Just bought some new furniture,” he drawled on, “and I can’t wait to see the look on her face when I tell her what I paid for it . . . it was one of those deals on the internet with free delivery, and I didn’t pay any sales taxes either.”
Some telling, all-too-common words uttered by an anonymous braggart, someone who would be the first to complain if police and fire protection in his area was curtailed because receipts from sales taxes continued to soften, regretfully too naive to understand the connection between the two.
There was some assurance recently when mega-sized Amazon announced that it has started paying Missouri state sales taxes because the internet retailer now has a “presence” in the St. Louis area. Still, it’s tough luck for counties, cities, and other entities who won’t share in the munificence. What stands are landmark Supreme Court cases involving mail-order retailers — Quill and Bellas Hess come to mind — that have prevented the spectrum of government entities from collecting taxes on sales, an advantage trumpeted over the years to facilitate selling merchandise over what has been called the “poor, undeveloped internet.”
In a striking role reversal, online retail internet activity is hotter than ever, while the survival of brick-and-mortar retailers (some of the most venerable names may soon get plowed under and disappear altogether) is in question.
Missouri’s first sales tax — one half of one percent — was enacted after considerable debate during the depths of the Great Depression in the 1930s. Billed as a temporary, emergency relief measure, it was soon made permanent, and the percentage would climb over the years, though, under constitutional fiat, lesser entities such as cities and counties were not allowed to levy their own sales taxes.
That door would eventually open via a constitutional amendment, and Columbia began collecting its own sales tax on April 1, 1971. For the cash-starved city, the one percent sales tax produced $3,663,801 from its inception through June 22, 1973, with $2,224,071 going into the city’s public improvement fund to finance major projects such as the construction of new streets. The remaining $1,447,230 went into the general fund to finance the general operations of city government, including its police and fire services.
Heady numbers from more than 40 years ago at a time when Columbia was running out of options to finance a growing city and a myriad of new municipal services its citizens were insisting on.
While the city’s financial picture and nourishment needs have grown exponentially, the internet exemptions sanctioned by federal court cases are costing cities, counties, and other taxing entities dearly; in the case of Columbia, a $6 million annual shortfall, by one estimate. Nowadays, geography and where you shop determines how much sales tax you’ll pay. It could be as little as the 4.225 percent basic state rate, or it could nudge just shy of 10 percent, depending on where you make your purchase. Where five percent once seemed in extremis years ago, the 10 percent threshold may not be far away.
For some, the thirst of government never seems to be sated. Talk of tacking on another tiny percentage to return the fairgrounds and the fair itself to their former vaunted glories of solvency has brought groans from some quarters. Some constituents — not necessarily with thrift in mind — find the pleas to plug the internet loophole rather amusing. For them, online purchases as a sales tax dodge is a deliberate protest against what they perceive as the bad karma that radiates from city government. Others say that taxing internet sales will only funnel more money to Washington with a scant prospect of much of it ever returning to our shores.
Perhaps these disparities in taxation will eventually be resolved. It’s the far darker, threatening clouds of Medicaid finance that could turn us — and probably the rest of the country — on its heels. But that’s something to consider another time.
 
Al Germond is the host of the Columbia Business Times Sunday Morning Roundtable at 8:15 a.m. Sundays on KFRU. He can be reached at [email protected].