It looks like Festus residents will be asked in November to approve a use tax that would allow the city to charge its 3-cent sales tax on internet purchases, just like the tax is charged on purchases at brick-and-mortar businesses.
Council members voted unanimously Monday to direct staff to draft an ordinance spelling out the ballot language to be placed on the Nov. 4 ballot. The council is expected to vote on the ordinance at its Aug. 25 meeting, a day before the deadline for entities to place measures on the November ballot, City Administrator Greg Camp said.
The measure would require a simple majority to pass, city attorney Brian Malone said.
Camp said revenue generated by the use tax would be dedicated to public safety and split between the city’s police and fire departments.
“It would be for facilities, training, equipment and personnel (for those two departments),” he said.
The city previously placed similar use tax measures before voters, most recently in April 2022, when it was voted down 640-843, or 43.16 percent to 56.84 percent.
In the past when Festus residents were asked to approve the use tax, city officials emphasized that it was unfair that no sales taxes are charged on internet purchases, but local small businesses have to collect sales taxes when selling their wares, putting those small businesses at a disadvantage.
“This is not a new tax,” Camp told the council. “It applies to purchases made from out-of-state vendors. It would be the equivalent of the local sales tax. It helps ensure fairness to Missouri-based businesses. It does eliminate the sales tax advantage enjoyed by out-of-state sellers.”
The overall sales tax rate in Festus is 9.35 cents per $1. Of that, 4.225 cents go to the state, 3 cents to the city, 1.625 cents to Jefferson County and 1/2 cent to the Joachim-Plattin Ambulance District.
Officials also have said that when cities and other governmental entities don’t receive sales tax revenue on internet sales, it cuts into the funding those entities have to spend on services.
Most cities and the county have asked Missouri residents already pay the 4.225-cent sales tax that goes to the state on internet sales, but not all vendors collect it. State residents who buy more than $2,000 in untaxed goods and services are supposed to report that on their state income tax returns.
A state law that went into effect in January 2023 further requires businesses not based in Missouri to pay the state sales taxes if they had more than $100,000 in business in the previous calendar year.
However, the 2023 law applies only to state sales tax. Counties, cities and other entities that collect sales taxes must ask their voters to approve a “use tax” on internet purchases and other out-of-state sales that is equal to their sales tax rates.
Jefferson County and the county’s municipalities have asked voters to approve the tax, but so far the measure has been approved only in Kimmswick, Crystal City and most recently Byrnes Mill.
If Festus voters approve the use tax in November, the Missouri Department of Revenue projects the city would begin collecting approximately $130,000 per year, Camp said, adding that he believes that estimate is “ridiculously” low.
The internet sales taxes are commonly called “Wayfair” taxes, referring to a 2018 U.S. Supreme Court case, South Dakota vs. Wayfair Inc., that overturned a rule preventing states from taxing the sales of vendors who don’t have a physical presence in that state.