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. Collection of sales tax on Internet sales has been a matter of ongoing debate both within individual states and at the federal level. Missouri is one of a number of states that has enacted special legislation (known as Amazon laws) that effectively forces larger, out-of-state Internet retailers to collect and pay sales tax.
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 having:
The corollary to the physical presence rule is that, if you do not have a physical presence in the state, you are not required to collect sales tax for an Internet-based sale to someone in that state. However, Missouri has special rules that apply to certain larger Internet retailers that make them subject to sales tax laws even without a physical presence in the state (see Missouri’s Amazon law, below).
Examples of Physical Presence
Example 1: You are an online retailer located in Tacoma, Washington and make a sale through your website 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. (There is an exception to this example if you are a large seller with substantial sales in Missouri; see below.)
Example 2: You are an online retailer located in an office in Columbia, Missouri and make a sale through your websiteto 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 through your website to a customer in Springfield, Missouri: You are required to collect sales tax from the Springfield customer.
In 2013, Missouri’s sales tax statute was amended with new rules for out-of-state sellers. The changes have the effect of requiring certain larger Internet retailers with no physical presence in Missouri to collect and pay Missouri’s sales tax. Specifically, an out-of-state vendor needs to collect sales tax from Missouri customers if that vendor:
Check RSMo Section 144.605(2)(e) for more details.
Another part of the 2013 law deals with so-called affiliate nexus. In short, if an out-of-state vendor has a person (affiliate) in Missouri who works in certain specific ways with the vendor, then the vendor is engaged in business in Missouri and has substantial nexus with Missouri. If you work with a person in Missouri to help sell, store, or service your products, check RSMo Section 144.605(2)(e).
While the physical presence rule may seem clear, this is not necessarily the case. InQuill, the Supreme Court discusses not only physical presence, but also several types of potential nexus (connections) between a business and a state. Many states, including Missouri, have used the term nexus rather than physical presence in their sales tax laws, regulations, or other official documents, and have sometimes defined nexus in ways that could go beyond physical presence. Nevertheless, for most small online businesses, it is the long-established physical presence rule established by Quill that will apply.
You can find guidance on how physical presence is determined under Missouri law from Section 144.605 of the Missouri Revised Statutes (RSMo), which defines the phrases “maintains a place of business in this state” and “engages in business activities within this state.” For most small online businesses, it is the long-established physical presence rule that will apply.
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. As a more readable option, review the standards published by the Missouri Department of Revenue (DOR) as 12 CSR 10-110, “Sales/Use Tax — Exemptions.” (“CSR” stands for “Code of State Regulations;” the Regulations are prepared by state agencies to interpret and explain the state’s laws.)
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 DORwebpage 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.
At the federal level, Congress has repeatedly considered legislation that would affect large Internet retailers and how online sales taxes are collected in all states. The most recent form of a proposed federal law is the Marketplace Fairness Act of 2015. As in previous versions, the 2015 Act 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.
Because Internet sales tax is a subject of ongoing debate, you should consider checking in periodically with the Missouri Department of Revenue to see if the rules have changed.
Updated: April 14, 2016