Mississippi Department of Revenue moves to tax out-of-state sellers

Although the Mississippi Legislature’s attempt to impose a tax obligation on certain out-of-state sellers was defeated early this year, the state hasn’t given up on its efforts to tax remote sales. Concurrent to the consideration of defeated House Bill 480, a new rule was proposed by the Department of Revenue (DOR). It’s now been filed with the Mississippi Secretary of State, as required by law.

The DOR’s proposed rule holds:

• “Substantial economic presence” is created when sales into the state exceed $250,000 per year based on the previous calendar year’s sales
• Out-of-state sellers that lack a physical presence in Mississippi but have a substantial economic presence for sales and use tax purposes must register with the state and collect and remit sales and use tax
• Nexus (a connection triggering an obligation to collect and remit tax) is created “when the consumer market is purposefully and systematically exploited by computer assisted shopping in addition to other customary means of media driven and catalogue distribution of solicitation made by out-of-state sellers”

Out-of-state sellers that voluntarily register with the state and collect and remit tax by July 1, 2017, “will be held liable for tax due on their sales into the state, on a prospective basis.”

Out-of-state sellers that don’t voluntarily register and collect applicable taxes by July 1, 2017, “will be assessed retroactively.” Furthermore, “no statute of limitations will be used in determining the total tax liability for such taxpayers.”

Additional details are available in the proposed rule.

In submitting the proposed rule to the Secretary of State on Oct. 10, 2017, the Department of Revenue explained why it’s needed:

• “Anyone who purposefully or systematically exploits the consumer market provided by this state by any media-assisted, media-facilitated or media-solicited means … creates nexus with this state.”
• “The DOR sees a need to properly define ‘purposefully and systematically exploiting the consumer market’ in order to have a clear meaning.”
• “Sales originating from out of state have steadily increased over the years … 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 this state are uniformly applied to persons doing business in this state.”

The department cannot estimate how many businesses the proposed rule would affect if implemented. Yet it predicts the cost to amend the rule is minimal, and the benefit of adopting it substantial. It estimates the state loses approximately $150,000,000 annually to untaxed remote sales transactions.

The public is invited to comment on the proposed rule in writing. Comments must be received by 5 p.m. on Oct. 30, 2017. More details are available here.

If Mississippi’s proposed rule is adopted, the state will join a growing list of states that have enacted economic nexus policies to capture revenue from non-collecting remote sellers. Learn what economic nexus means for your remote sales.