If you are selling goods or products online and some of your customers are located in Missouri, 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 Missouri. A new federal law would affect all state Internet sales tax laws so be sure to check for updates in this area.
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.
For basic guidance on how physical presence is determined specifically under Missouri law, consult Section 144.605(3) of the Missouri Revised Statutes (RSMo), which defines the phrase “maintains a place of business in this state." Note that the definition covers various places of business that are controlled “directly or indirectly, or through a subsidiary, or agent.”
For additional guidance, review the standards published by the Missouri Department of Revenue (DOR) as 12 CSR 10-144.100, “Determining When a Vendor Has Sufficient Nexus for Use Tax.” (“CSR” stands for “Code of State Regulations;” the Regulations are prepared by state agencies to interpret and explain the state’s laws). Use tax, further discussed below, is a companion tax to the sales tax, and “nexus” in this context is essentially a synonym for physical presence. The Regulation discusses when an out-of-state vendor is responsible for collecting use tax; the standard is essentially identical to the federal standard for collecting sales tax. As stated in the first sentence of the Regulation, “Sufficient nexus exists when the vendor has a physical presence in Missouri.” While not specifically mentioning Internet sales, one of the examples in the Regulation does state that a business that has sales “which are delivered either by common carrier [e.g., UPS, Fedex] or U.S. mail” but “has no other contacts with the state . . . is not required to collect Missouri tax.”
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 store in Tacoma, Washington and make a sale to a customer in Independence, Missouri—a state where your business has no physical presence: You are not required to collect sales tax from the Independence customer.
Example 2: You are operating solely out of an office in Columbia, Missouri and make a sale to a customer in Saint Louis, Missouri: You are required to collect sales tax from the Saint Louis customer.
Example 3: After several years of operating solely out of a store in Tacoma, Washington, you open a one-room satellite office just outside of Kansas City, Missouri—a state where previously you had no physical presence. A day later, you make a sale to a customer in Springfield, Missouri: You are required to collect sales tax from the Springfield customer.
Some items sold via the Internet to Missouri customers may be exempt from sales tax under Missouri law. For example, RSMo Section 144.030.22 states that farm machinery and equipment used exclusively for agricultural purposes are exempt from sales tax. For further information on most tax-exempt items, you can consult RSMo Section 144.030 generally; or, as a more readable option, review the various sections of 12 CSR 10-110.
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.” More information is available on a Missouri DOR webpage covering both sales tax and use tax. As the webpage’s section on the use tax states, “Missouri cannot require out-of-state companies that do not have nexus or a ‘direct connection’ with the state to collect and remit use tax. If an out-of-state seller does not collect use tax from the purchaser, the purchaser is responsible for remitting the use tax to Missouri.” Also, the DOR publishes a very detailed set of use tax regulations as 12 CSR 10-4.005 through 12 CSR 10-4.634.
While you might not know it from looking solely at Missouri’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 and at the federal level. However, at this time Missouri has not enacted any law that would require out-of-state retailers to collect sales tax from Missouri customers.
In Missouri, the physical-presence rule applies for Internet retailers. However, because the issue is hotly debated in various quarters, you should consider checking in periodically with the Missouri 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.