The Missouri House of Representatives is considering legislation (House Bill 648) that would impose sales tax collection obligations on payment processors.1 House Bill 648 was introduced on January 23, 2019, was read in the House, and is pending committee assignment.
Summary of House Bill 648
House Bill 648 provides that sales tax applies to “all sales made through the internet to purchasers in this state regardless of whether the seller has a physical presence in this state.” The bill would require that all remote internet sellers subject to Missouri sales tax use a payment processor to collect and remit tax.
House Bill 648 defines “payment processor” as “the credit card company or other financial institution that the purchaser uses or interacts with most directly to facilitate payment to the seller.” But, where a seller directly extends credit to its customers or accepts direct payment from customers, the bill provides that the seller would be treated as a “payment processor” for the purposes of the proposed sales tax collection obligation.
Finally, the bill also provides that all sales subject to sales tax “under this subsection” are to be sourced to the billing address of the purchaser.
Eversheds Sutherland Observations
As introduced, House Bill 648 raises several concerns regarding the liability of the seller and payment processor in the transactions subject to the proposed regime:
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First, the bill leaves open whether remote internet sellers would remain liable for uncollected sales taxes or if those sellers would be held harmless if they engaged payment processors, as required by the bill.2 Other statutory regimes that shift liability from retail sellers, such as marketplace facilitator collection statutes, typically clarify the party liable for sales tax. The lack of clarity in House Bill 648 regarding liability likely would raise compliance, audit and indemnification concerns for parties subject to the provisions of the bill.
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Second, the sourcing regime in House Bill 648 may not be administrable in some cases because payment processors often do not have the billing addresses of purchasers in transactions, knowledge about exactly what is being purchased, or the systems necessary to facilitate sales tax collection.
Moreover, House Bill 648 may violate the federal Internet Tax Freedom Act because it discriminates against electronic commerce by “impos[ing] an obligation to collect or pay the tax on a different person or entity than in the case of transactions involving similar property, goods, services, or information accomplished through other means.”3
Similar to legislation currently under consideration in Connecticut (H.B. 5891) and continued efforts in Massachusetts (Governor’s FY 2020 Budget Proposal), which would adopt “real-time” sales tax collection obligations for payment processors, Missouri House Bill 648 would also shift sales tax collection obligations from the seller in a retail sales transaction to payment processors, which are mere intermediaries in transactions. None of these other proposals have been enacted.4
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1 House Bill 648 also would impose tax on “ancillary services.” While the bill does not define those services, the Streamlined Sales and Use Tax Agreement defines “ancillary services” as “services that are associated with or incidental to the provision of “‘telecommunications services’, including but not limited to ‘detailed telecommunications billing’, ‘directory assistance’, ‘vertical service’, and ‘voice mail services’.” SSUTA Appendix C, Library of Definitions, Part II ('Telecommunications'). As in prior legislative sessions, Missouri is considering Streamlined Sales Tax legislation in 2019. See Missouri Senate Bill 46 (2019).
2See, e.g., R.C.W. § 82.08.0531.
3 I.T.F.A. §§ 1101(a)(2), 1105(2)(A)(iii) (47 U.S.C. § 151, note).
4See Scott Mackey, State Tax Research Inst., Daily Sales Tax Collection System Could Cost Massachusetts Businesses $1.2 Billion (2017) and Mass. Dep’t of Revenue, Accelerated Sales Tax Feasibility Study (2017).
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