Mississippi to tax out-of-state sellers starting Dec. 1, 2017

Update 8.22.2018: The Mississippi Department of Revenue has published new guidelines for out-of-state sellers in response to United States Supreme Court decision in South Dakota v. Wayfair, Inc. (June 21, 2018). In Wayfair, the court repealed the physical presence standard — that a state can only require businesses that have a physical presence in the state to collect and remit sales tax — finding it "unsound and incorrect." States now have the authority to tax remote sales.

According to the notice, "The Department will allow online sellers to begin collection of Mississippi use tax for sales made on or after September 1, 2018, when such sellers register to collect Mississippi tax by August 31, 2018. Remote sellers with annual Mississippi sales in excess of the $250,000 small seller exception should register for a Mississippi Use Tax Account and begin collecting tax on Mississippi sales no later than September 1, 2018."

Learn more about the South Dakota v. Wayfair, Inc. decision and its potential impact on businesses here.

Beginning Dec. 1, 2017, certain out-of-state sellers will be required to register with the Mississippi Department of Revenue (DOR) and collect and remit tax on their Mississippi sales.

According to a new rule, “sellers who lack physical presence nexus in Mississippi but who are purposefully or systematically exploiting the Mississippi market have a substantial economic presence for use tax purposes if their sales into the state exceed $250,000 for the prior twelve months.” As of Dec. 1, these sellers must collect the tax and state it separately on invoices and sales records.

“Purposefully or systematically exploiting the market” includes, but is not limited to:

• Advertising on billboards, wallscapes, bus benches, interiors, and exteriors
• Advertising in print media (e.g., magazines, newspapers) in Mississippi
• Advertising to a Mississippi customer through applications (apps) or other electronic means on customer’s phones and devices
• Direct mail marketing to a Mississippi customer
• Direct messaging a Mississippi customer (e.g., emails, texts, tweets)
• Running television or radio ads
• Telemarketing to a Mississippi customer

The rule also states that “any seller who has collected and not remitted Mississippi tax on sales made before December 1, 2017 would still be liable for any tax collected.” It doesn’t reference remote retailers that have done business in Mississippi but not collected tax.

When it remitted the proposed rule to the Secretary of State in early October, as required by law, the DOR explained why the policy change was necessary. The department was “attempting to ensure that the laws of this state are uniformly applied to persons doing business in the state.” Prior to Dec. 1, remote retailers that don’t have a physical presence in Mississippi don’t have to collect or remit tax on their Mississippi sales. This gives “an unfair advantage to out-of-state businesses selling from outside Mississippi,” according to the DOR.

Many lawmakers in Mississippi, including Gov. Phil Bryant, have worked to tax remote sales for more than a year. Others, including Lt. Gov. Tate Reeves, have long opposed the idea on the grounds that it would “put Mississippi in litigation.” It might.

Under precedent upheld by the United States Supreme Court in Quill Corp. v. North Dakota, 504 U.S. 298 (1992), states lack the authority to tax businesses that don’t have a substantial connection to (i.e., physical presence in) the state. Attempts by other states to tax remote sellers have ended up in court. South Dakota’s economic nexus law (SB 106), for example, was contested shortly before taking effect on May 1, 2016, and could end up before the U.S. Supreme Court. Alabama’s substantial economic nexus regulation is also being challenged.

Learn more about state efforts to expand nexus to remote retailers at the Avalara Resource Center.