If you are selling goods or products online and some of your customers are located in Mississippi, you need to be aware of the state’s Internet sales tax rules. As you read, keep in mind that collection of sales tax on Internet sales has been a matter of ongoing debate both at the state and federal level.
The federal government is currently considering legislation that would affect large Internet retailers and how online sales taxes are collected in all states. The proposed federal law, called the Marketplace Fairness Act of 2013, would allow states to require sellers not physically located in their state to collect taxes on online and catalog sales made to people in their state. Sellers that make $1 million or less in annual sales and have no physical presence in the state would be exempt from this requirement. States would have to meet certain criteria to simplify their sales tax laws and make sales tax collection easier before they could require sellers to collect the tax.
Below is an article on the current rules on Internet sales tax in Mississippi. The new federal law scheduled to be voted on in May 2013 would affect all state Internet sales tax laws so be sure to check for updates in this area. (We will continue to keep you updated as well.)
The General Rule: Physical Presence in the State
The current default rule throughout the United States is that you must collect sales tax on Internet sales to customers in those states where your business has a “physical presence.” The physical-presence rule is based on a 1992 United States Supreme Court decision, Quill Corp. v. North Dakota, that addressed the obligations of mail-order businesses to collect sales tax on out-of-state sales; the decision has been extended to include online retailers. Generally speaking, a physical presence means such things as:
- having a warehouse in the state
- having a store in the state
- having an office in the state, or
- having a sales representative in the state.
While the physical-presence rule may seem clear, in the case of Mississippi, as well as a fair number of other states, it is necessary to emphasize that in Quill, the Supreme Court discusses not only physical presence, but also several types of potential “nexus” (connection) between a business and a state. One type of nexus is based on the Due Process Clause of the Constitution and another type is based on the Commerce Clause of the Constitution. The type of “nexus” the Supreme Court ultimately found relevant for mail-order businesses was the Commerce Clause version, which—as described by the Supreme Court—means physical presence. However, many states, including Mississippi, have used the term “nexus” rather than “physical presence” in their sales tax laws, regulations, or other official documents, and, in the process, have sometimes defined nexus in ways that some people may think goes beyond physical presence.
For basic guidance on how physical presence is defined specifically under Mississippi law, refer to Section 27-67-3(j) of the Mississippi Code Annotated (Miss. Code Ann.), which defines the phrases “person doing business in this state” and “person maintaining a place of business within this state.” (Note: Mississippi’s statutes are available online through a web portal maintained by a private company, LexisNexis; it is not possible to provide direct links to individual sections of the statutes in this website.)
For additional guidance, see the section “What is Nexus?” in the Sales Tax FAQs document published by the Mississippi Department of Revenue (DOR). The section briefly states that “nexus,” which creates a requirement to collect and pay sales tax, exists “when a business either owns business property located in Mississippi or when the business is represented in this state by employees or agents of the business who service customers in Mississippi . . . .”
As you might expect, the corollary to the physical-presence rule is that, if you do not have a physical presence in the state, you generally are not required to collect sales tax for an Internet-based sale to someone in that state.
Example 1: You are operating solely out of a warehouse in Milwaukee, Wisconsin and make a sale to a customer in Hattiesburg, Mississippi—a state where your business has no physical presence: You are not required to collect sales tax from the Hattiesburg customer.
Example 2: You are operating solely out of an office in Biloxi, Mississippi and make a sale to a customer in Tupelo, Mississippi: You are required to collect sales tax from the Tupelo customer.
Example 3: After several years of operating solely out of a warehouse in Milwaukee, Wisconsin, you open a one-room satellite office just outside of Jackson, Mississippi—a state where previously you had no physical presence. A day later, you make a sale to a customer in West Gulfport, Mississippi: You are required to collect sales tax from the West Gulfport customer.
Some items sold via the Internet to Mississippi customers may be exempt from sales tax under Mississippi law. For example, under Miss. Code Ann. 27-65-103(a), seeds, feed, and various other products for use in agriculture are exempt from sales tax. A readable DOR webpage lists most of the exemptions to the state sales tax. Alternatively, you can review Miss. Code Ann. 27-65-101 through 27-65-111, and Sections 6.01 through 12.03 of Title 35, Part IV of the Mississippi Administrative Code. (Note: Title 35, Part IV of the Mississippi Administrative Code, which covers the state’s sales and use tax, is readily available online only in its entirety, as part of a nearly 125-page PDF file.)
Mississippi law also provides for an annual sales tax holiday, limited to clothing costing less than $100, starting on the last Friday in July and carrying through to the following Saturday. More information is available on a DOR webpage and in Miss. Code Ann. 27-65-111(bb).
The Customer’s Responsibility
In cases where the online retailer does not have to collect sales tax, it is the customer’s responsibility to pay the tax—in which case it is known not as a sales tax but, rather, a “use tax.” The Use Tax FAQs document published by the DOR states that “Use tax applies to purchases of items that are shipped or delivered into Mississippi from an out-of-state location,” and goes on to suggest that items “purchased by mail order, catalog, shopping networks, or over the internet” from outside the state are subject to use tax. For additional information, see the DOR’s use tax webpage, Miss. Code Ann. Sections 27-67-1 through 27-67-33, and Sections 35.IV.3.05.200 through 35.IV.3.05.203 of the Mississippi Administrative Code.
Mississippi and “Amazon Laws”
In early 2011, the Mississippi legislature considered new legislation that would require larger out-of-state Internet retailers with special arrangements with in-state persons to collect and pay sales tax. Similar laws have been at least considered, and sometimes enacted, in various states around the country. They are commonly known as “Amazon Laws” and address what are known as “click-through” arrangements with in-state residents. (As you might guess, the term “Amazon Law” refers to Amazon.com, which is a large, Internet-based retailer that does not have a physical presence in many states, and therefore, under the default sales tax rule, need not collect sales tax from customers in those states. As customers in those states often do not pay the corresponding use tax, Amazon’s sales, and those of other large online retailers, such as Overstock.com, are frequently understood to constitute significant lost tax revenue for those states.)
The proposed Mississippi law, however, died in committee later in 2011.
While you might not know it from looking solely at Mississippi’s sales tax statute, the issue of whether to require online retailers to collect sales tax in states where they have no physical presence has been a matter of significant debate in many states, including Mississippi, as well as at the federal level. The Mississippi legislature’s consideration in 2011 of a new law for larger out-of-state Internet retailers was one part of this larger debate. However, at this time Mississippi has not enacted any law that would require out-of-state retailers to collect sales tax from Mississippi customers.
In Mississippi, the physical-presence rule continues to apply for Internet retailers. However, because the issue is a subject of ongoing debate, you should consider checking in periodically with the Mississippi Department of Revenue to see if the rules have changed. For more general information on taxes on Internet sales, see Nolo's article Sales Tax on the Internet. And, for information on the rules about collecting sales tax for Internet sales in any other state, see Nolo’s article, 50-State Guide to Internet Sales Tax Laws.