Missouri seeks to tax digital products and subscriptions

Broadening sales and use tax to a new product or service doesn’t have to be hard, but it’s easier in some states than in others. Missouri is one of the tougher sells.

Sometimes, a state tax authority simply decides a product or service can be taxed under existing law. That’s what the West Virginia State Tax Department did recently with streaming services.

It’s more common for a state legislature to introduce a new tax, hash it out in committee, and enact it — or not. That’s how Maryland came to tax digital advertising, digital products, and software as a service (SaaS).

It's a bit more difficult to expand the sales tax in Missouri because in November 2016, Missouri voters approved a constitutional amendment prohibiting state and local governments from taxing any service or transaction that wasn’t already subject to sales or use tax as of January 1, 2015. To amend or repeal this would require approval by a vote of the people.

Senate Joint Resolution 33 calls for one. It specifies that state and local sales and use taxes “shall not be expanded to impose taxes on any service or transaction that was not subject to sales, use or similar transaction-based tax on January 1, 2015, except for subscriptions, licenses for digital products, and online purchases of tangible personal property.”

If SJR 33 is enacted, Missouri voters will likely be asked to amend the Missouri Constitution “to modify the prohibition on certain new sales and use taxes” during either the August or November 2022 election. That would be the first step.

Should voters then approve amending the constitution to allow the taxation of digital products, subscriptions, and online purchases of tangible personal property, lawmakers would need to introduce and enact legislation establishing any such taxes.

However, Missouri is already on track to tax remote online sales of tangible goods starting January 1, 2023.

The fiscal note for SJR 33 reminds that “under current law these items and transactions [i.e., digital products, subscriptions, and online purchases of tangible personal property] are already taxable under the use tax law in Chapter 144. This provision would clarify that they could also be subject to sales tax, rather than use tax.”

This is an interesting clarification.

SJR 33 seeks to allow the Missouri Legislature to expand sales tax to “online purchases of tangible personal property.” But under the state’s new economic nexus provision, established by Senate Bill 153 in 2021, remote vendors and marketplace facilitators must collect and remit applicable Missouri use tax if, during the previous 12-month period, they have cumulative gross receipts of at least $100,000 from the sale of tangible personal property in Missouri.

The Missouri Legislature may be trying to ensure its economic nexus law won’t be challenged as unconstitutional. For their sake, let’s hope Missourians allow a sales tax on online purchases of tangible personal property, if the question makes the ballot.[1]

Every other state with general sales tax already enforces economic nexus, as do Puerto Rico, Washington, D.C., and many local jurisdictions in Alaska. To learn where you’re most at risk for economic nexus, take our free economic nexus risk assessment.

Cover photo by Canva