Missouri to Eliminate Sales Tax on Back-to-School Items for the First Time
Missouri residents will enjoy a tax-free weekend on new clothes and school supplies from August 4 to August 6, as the state eliminates sales tax on these items for the first time. Since 2003, families have been able to take advantage of a tax holiday at the beginning of August to prepare for the upcoming school year. However, local governments had the authority to opt out of this tax holiday, limiting its impact due to local sales taxes often matching or exceeding the state charge.
This year, the repeal of the opt-out provision means that there will be no sales tax at all on exempt items such as backpacks, calculators, and jeans. The change was part of a 2021 tax law that allows Missouri and local governments to collect tax on online purchases. The new law is expected to cost local governments approximately $465,000 in lost revenue. However, this loss will be offset by additional revenue from online sales in communities that have implemented a use tax.
Out of the 156 cities that opted out in 2022, 79 now have use taxes, including popular shopping destinations like Cape Girardeau, Columbia, Joplin, and Springfield. Among counties, 49 out of 114 opted out in 2022, and 31 of those now have use taxes. The state tax of 4.225% provides funding for government, public schools, conservation programs, and state parks. Local taxes can be imposed for general operations and to support specific functions such as law enforcement, parks, tourism promotion, and road work.
The change in tax law was driven by the need to standardize sales tax holidays in order to comply with the Wayfair case, in which the U.S. Supreme Court ruled that states can tax online sales. The Wayfair case was brought by the online retailer of the same name. Richard Sheets, executive director of the Missouri Municipal League, emphasized the importance of standardizing sales tax holidays to ensure compliance with the interstate agreement on tax collection for online purchases.
The repeal of the opt-out provision also applies to the “Show Me Green Sales Tax Holiday,” which exempts purchases of energy-star rated appliances costing ,500 or less for a week in April. State Senator Andrew Koenig highlighted the confusion faced by consumers in keeping track of which communities opted out and participated in the tax holidays. He also noted that businesses were unsure about which part of the tax holiday applied to them.
The new tax law has boosted sales tax revenues, which were nearly stagnant. Sales tax receipts grew by only 1.7% in fiscal 2020 but jumped to 7.6% in fiscal 2023, which ended on June 30. Missouri agreed to abide by the Streamlined Sales and Use Tax Agreement, which requires voter approval before local governments can collect online taxes. So far, voters in 281 municipalities across the state have approved the tax.
The opt-out provision was initially included as a compromise to address concerns from local governments about potential revenue loss. However, cities have accepted the trade-off of lost revenue from tax holidays in exchange for new revenue from online purchases. Richard Sheets stated that there have been no major complaints from cities regarding the change in tax law.
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How does the implementation of a use tax on online sales in Missouri offset the revenue lost from the elimination of sales tax on back-to-school items?
Es can require out-of-state retailers to collect sales tax on online purchases. By implementing a use tax on online sales, Missouri and local governments are able to collect the tax revenue that would have been lost due to the elimination of sales tax on back-to-school items.
The tax-free weekend on new clothes and school supplies is a welcomed benefit for Missouri residents, especially families who are preparing for the upcoming school year. In the past, the impact of the tax holiday was often limited due to local governments opting out and imposing their own sales taxes. However, with the repeal of the opt-out provision, all residents of Missouri can enjoy the tax benefits during this limited timeframe.
While the new tax law will result in approximately $465,000 in lost revenue for local governments, the implementation of use taxes on online sales is expected to offset this loss. Many communities in Missouri, including popular shopping destinations like Cape Girardeau, Columbia, Joplin, and Springfield, have already implemented use taxes and will benefit from the additional revenue generated from online sales.
The sales tax in Missouri, which is currently set at 4.225%, provides crucial funding for government operations, public schools, conservation programs, and state parks. Local taxes can also be imposed to support specific functions such as law enforcement, parks, tourism promotion, and road work. It is important for both state and local governments to balance the need for tax revenue with providing tax relief to residents, and the elimination of sales tax on back-to-school items for the first time is a step towards achieving that balance.
Overall, the change in tax law in Missouri is a response to the Wayfair case and the need to standardize sales tax holidays. By implementing use taxes on online sales, the state and local governments can collect the necessary tax revenue while also providing tax relief to residents during the tax-free weekend. This is a positive development for Missouri residents, especially families who are preparing for the upcoming school year and can now save money on essential back-to-school items.
This new approach in Missouri will not only streamline the back-to-school shopping experience but also ensure fairness and consistency in sales tax collection. A positive step towards simplifying tax policies for both consumers and retailers.