A bill that would collect taxes on online sales while lowering the income tax rate got initial approval in the House on Tuesday, marking a major step for one of Gov. Mike Parson’s top priorities.
House Bill 554, sponsored by Rep. J. Eggleston, R-Maysville, includes a use tax, commonly known as the “Wayfair tax,” that would tax businesses that sell products online and don’t have a physical presence in Missouri.
Missouri is one of the only two states that collects sales tax but don’t have a “Wayfair tax.” The tax is named after the 2018 U.S. Supreme Court case that allowed states to collect taxes on online sales, Wayfair v. South Dakota. Companies like Wayfair, eBay and Etsy would be subject to the tax.
Bills to implement a “Wayfair tax” have been proposed the past several years but have been killed in the Senate by conservative Republicans who wanted a tax cut to accompany the new tax. The new bill’s proposal to lower the top tier of the income tax is designed to overcome those objections.
Eggleston said the bill would level the playing field for small businesses in Missouri to better compete with their internet counterparts, allow the government to capitalize on the Wayfair decision and improve the tax code for average citizens.
Rep. Brian Seitz, R-Branson, asked Eggleston if the bill would raise taxes for Missourians. Eggleston said that, in the end, it wouldn’t, because, while they would pay more in taxes on internet purchases, their income taxes would be lower.
“This tax, while leveling the playing field, levels it in the wrong direction,” Seitz said, adding that the new tax would hurt consumers by raising their taxes. “I was elected to lower taxes and therefore am against this tax. To paraphrase the great Dr. Seuss: One tax, two tax, let’s not, new tax.”
Missouri will lose a minimum of almost $72 million from general revenue when the bill is fully implemented, according to HB 554’s fiscal note. That’s because the income tax reduction would amount to more than the revenue from the Wayfair tax.
Eggleston defended his bill and said the fiscal note doesn’t account for inflation and products costing more in the future, so revenue from the use tax will be higher than projected. He went on to say that the total net effect on general revenue should break even in around 10 years.
Currently, the income tax rate for the wealthiest Missourians is 5.4% and can be reduced to 5.1% through previously passed legislation. Those cuts happen in increments of 0.1% after every fiscal year in which net general revenue is at least $150 million more than the highest net general revenue amount of the last three years.
HB 554 would reduce the top income tax rate to 5.3% and allow it to be reduced to 5%.
The bill is supported by the Missouri Economic Development Council, Missouri Cable Telecommunications Association, Associated Industries of Missouri and the Missouri Chamber of Commerce.
“It is time that we get this passed, do it in a fair way to our citizens and help our local businesses who have struggled so much have a level playing field as they compete with their internet counterparts,” Eggleston said.