By Rudi Keller
For just as long, every city, county and special district that imposes its own sales tax has had the authority to opt out of the Back to School tax holiday. With local sales taxes often matching or exceeding the state charge, the impact of the discount was limited.
This year, for the first time, there will be no sales tax at all from 12:01 a.m. Friday until midnight Sunday on any sales of the exempt items like backpacks, calculators and jeans. The repeal of the opt-out provision was one of the changes in a 2021 tax law that allows Missouri and local governments to collect tax on online purchases.
Not being able to opt out is expected to cost local governments about $465,000, but it’s offset by additional revenue from online sales in communities that have rolled out what is called a use tax. Of the 156 cities that opted out in 2022, 79 have these use taxes, including regional shopping destinations like Cape Girardeau, Columbia, Joplin and Springfield. Among counties, 49 of 114 opted out in 2022, and 31 of those now have use taxes.
An interstate agreement requires that tax collection for online purchases be as simple as possible, said Richard Sheets, executive director of the Missouri Municipal League. Even without the holiday, the state sales tax table is already 99 pages long because of various local add-ons to the state’s 4.225% tax. The combined state and local tax rate exceeds 11% in several communities.
The U.S. Supreme Court determined five years ago that states can tax online sales, even though the companies don’t have a physical presence within state lines. It’s known as the Wayfair fix because the case was brought by the online retailer.
“To make Wayfair work, we have to standardize those sales tax holidays,” Sheets said. “We can’t have various rules that out-of-state vendors have to abide by.”
In Missouri, the bill that ended Back to School holiday opt-outs also nixed local opt-outs on the “Show Me Green Sales Tax Holiday,” which exempts purchases of energy-star rated appliances costing $1,500 or less for a week in April.
Keeping up with which communities opted out and those that participated in the tax holidays was confusing to consumers, said state Sen. Andrew Koenig, R-Manchester. Cities, counties and special districts all have the authority to impose sales taxes with voter approval, and the top rate is above 11% in a number of communities.
“Consumers think there is a holiday, and they didn’t realize they have to pay the local tax,” Koenig said. “Also, I heard from some businesses that they weren’t sure what part was opted in and opted out.”
Oftentimes, cities and counties with large shopping districts would opt out together. That is how it worked in Springfield and Columbia, for example, meaning that only the state tax was not collected.
In Cape Girardeau County, the county government did not opt out while the city of Cape Girardeau did, so the only tax retailers collected was the 2.75% city tax.
Enacting the Wayfair case language was a priority for Missouri retailers, because it meant goods purchased online — often discounted already compared with in-person retailers — would no longer receive the additional advantage of untaxed sales.
The law has boosted sales tax revenues, which were nearly stagnant. Sales tax receipts only grew 1.7% in fiscal 2020, a rate that jumped to 7.6% in fiscal 2023, which ended June 30.
With Koenig’s legislation, Missouri agreed to abide by the Streamlined Sales and Use Tax Agreement, which has a governing body that decides if state policies meet requirements. Ending opt-outs on sales tax holidays was an important piece of that, Koenig said.
“I didn’t want to take any chances of us being out of compliance,” he said.
Before local governments can collect the online taxes, voters must approve the levy. So far, voters in 281 municipalities across the state have approved the tax.
The opt-out provision was included originally as a compromise because local governments zealously guard their revenue sources when threatened by the legislature. So far, Sheets said, cities have accepted the trade-off of lost revenue from the tax holidays for new revenue from online purchases.
“We haven’t had any major complaints,” he said.
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