December 12, 2017

December 12, 2017

Subscribe to Latest Legal News and Analysis

December 11, 2017

Subscribe to Latest Legal News and Analysis

Mississippi Takes Next Step Toward Finalizing Remote Use Tax Collection Regulation

Files Questionable Economic Impact Statement with Secretary of State

On Tuesday, the Mississippi Department of Revenue filed an economic impact statement with the Secretary of State addressing its proposed regulation adopting use tax economic nexus standards and remote seller collection obligations. Readers may recall the Department issued the proposed regulation in January and held a public hearing in February, only to have a similar legislative proposal die after Lieutenant Governor Tate Reeves publicly stated that he considered the proposal unconstitutional. See prior detailed coverage of these proposals and events on the blog here and here and here.

To recap, the proposed regulation would define “substantial economic presence” to exist when sales into the state exceed $250,000 per year based on the previous calendar year’s sales. Out-of-state sellers who lack a Mississippi physical presence but who are making retail sales of tangible personal property into the state and have a substantial economic presence for sales and use tax purposes would be required under the proposal to register for a license with the Department in order to collect and remit use tax. The Department would apply the regulation prospectively to those who voluntarily register to collect use tax on their sales into Mississippi by July 1, 2017, but would assess those who have not voluntarily registered to comply with the regulation retroactively. No statute of limitations will be used in determining the total tax liability for such non-registering taxpayers under the proposal.

The economic impact statement contains several interesting claims that reveal the Department’s reasoning and view of the regulations’ impact on multistate sellers:

  • In summarizing the benefits of the regulation, the Department states that it will provide “greater clarity and guidance concerning the taxability of out-of-state sales and an increase in tax revenue and uniformly applied laws.” No mention is made of the almost certain unenforceability of its provisions, even though the Commissioner was publicly quoted as acknowledging the regulation directly contradicts Quill and is likely unconstitutional, stating, “What we’re doing is probably unconstitutional, but we’ve got to do it to get another hearing.”

  • The Department claims the state is losing an estimated $150,000,000 in use tax revenue due to out-of-state vendors who do not collect the tax. These figures reportedly are based on an estimate of lost revenue provided by 21st Century Retail (www.efairness.org), which was created from data using the National Conference of State Legislators 2015 data.

  • The Department claims “the law does not provide any other methods to collect and remit tax.” Interestingly, there is no mention of the fact that, under existing law, local consumers are required to self-report these taxable interstate transactions, or that the Department actively enforces the use tax laws against Mississippi businesses.

  • In defining the need for the regulation, the Department states that it “sees a need to properly define ‘purposefully and systematically exploiting the consumer market’ in order to have clear meaning.” The statement does not explain how the regulation’s unqualified $250,000 sales threshold equates to “purposefully” or “systematically” exploiting the local market, especially considering the Department previously acknowledged that a single unsolicited transaction could meet this requirement.

  • Instead, the explanation for the regulation focuses solely on purported lost revenue. “Sales originating from out of state have steadily increased over the years attributing to the erosion of the tax base for sales and use taxes for the State of Mississippi resulting in lower sales and use tax collections. This provides an unfair advantage to out-of-state businesses selling from outside Mississippi. The DOR is attempting to ensure that the laws of the state are uniformly applied to persons doing business in this state.”

  • The Department estimates it will not cost the agency or other state entities anything to implement the proposed regulation. Litigation costs apparently did not enter this equation. Similarly, the Department reports “minimal” estimated costs and/or economic benefits to persons directly affected by the proposed rule.

  • The statement also purports the regulation to have “minimal” estimated impact on small businesses, but the explanation clearly states that the Department had no data upon which to base that statement. “The DOR could not determine with any accuracy or reliability the total number of businesses in the U.S. that have gross sales or revenue less than $10,000,000 or how many of those businesses are making sales of $250,000 or more in this state.” It goes further to state that compliance costs will have “minimal impact” on small businesses because “many companies already have filing requirements in other states and already have the necessary recordkeeping and reporting mechanisms in place.” No mention is made of the complete lack of uniformity across the country’s thousands of sales and use tax jurisdictions on issues such as nexus, sales tax base, rates, exemptions, exclusions, procedure, etc., all of which undeniably create substantial burdens on interstate sellers and especially those small businesses lacking the extensive internal resources of many larger organizations.

  • The statement claims the benefits of adopting the rule are “substantially more than” that compared to not adopting the rule. It is unclear whether the Department was referring to costs/benefits to the State itself or to the impacted taxpayers. It also claimed there are no “less costly or less intrusive methods” for achieving the purpose of the proposed rule.

Interested parties may submit written comments to the economic impact statement at any time prior to October 30, 2017, but no public hearing appears to have been scheduled at this time.

Taxpayers should keep a close eye on Mississippi’s proposed regulation, especially considering the Department claims it has authority (and, presumably intent) to move forward with the regulation even in the absence of any further legislative support.

© 2017 Jones Walker LLP

TRENDING LEGAL ANALYSIS


About this Author

Partner

John Fletcher is a partner in the firm's Tax & Estates Practice Group and practices from the Jackson, Mississippi office. With more than twenty years' experience in the legal, corporate, and accounting arenas, his practice focuses primarily on state tax matters, encompassing Mississippi, Louisiana and multi-state income, franchise, sales, use and local ad valorem taxes.

He is a contributor for Cooking with SALT, a legal blog committed to providing timely insights on recent legal and practical developments concerning clients...

601-949-4620