In­trigu­ing con­flu­ence of fed­eral, state tax cuts meet court re­view in Way­fair case

Starkville Daily News - - FORUM -

How 2017 fed­eral and 2016 state tax cuts im­pact Mis­sis­sip­pi­ans and the abil­i­ties of state and lo­cal gov­ern­ments to pro­vide ser­vices based on the rev­enues avail­able from fu­ture tax col­lec­tions un­der those cuts are ques­tions not yet fully an­swered.

But to make mat­ters even more in­ter­est­ing, the long term im­pact of those fed­eral and state tax cuts may well be sig­nif­i­cantly im­pacted by the out­come of a 2018 U.S. Supreme Court re­view of a 26-year-old rul­ing that the Na­tional Con­fer­ence of State Leg­is­la­tures pre­dicts could have an over $26 bil­lion im­pact na­tion­ally on state and lo­cal tax rev­enues.

How does that trans­late into Mis­sis­sippi sales or use tax rev­enues at a time when tra­di­tional sales tax col­lec­tions have shifted from re­li­able an­nual growth to a near flat-lin­ing of rev­enues? In Fis­cal Years 2016 and 2017, sales tax col­lec­tions ac­counted for 38 per­cent of the state's Gen­eral Fund re­ceipts as the State Depart­ment of Rev­enue col­lected $2.062 bil­lion in sales taxes in FY 2016 and $2.055 bil­lion in 2017. Twenty years ago, that per­cent­age was 41 per­cent.

In 2016, Mis­sis­sippi law­mak­ers adopted and Gov. Phil Bryant signed the “Tax­payer Pay Raise Act” – the largest sin­gle tax cut in Mis­sis­sippi his­tory. By the time the mea­sure is fully en­acted in Fis­cal Year 2028, the state will be fore­go­ing a pro­jected $415 mil­lion per year less in tax rev­enues.

The ten-year tax cut is pred­i­cated on three pri­mary strate­gies: Elim­i­na­tion of the state's cor­po­rate fran­chise tax; elim­i­na­tion of the three per­cent in­di­vid­ual in­come and cor­po­rate in­come tax brack­ets; and cre­ation of an ex­emp­tion of a por­tion of fed­eral self-em­ploy­ment tax on the state tax fil­ings of the state's self-em­ployed.

Sup­port­ers of the mea­sure ar­gued that the state tax cut would ul­ti­mately cre­ate a more busi­ness-friendly en­vi­ron­ment in the state and there­fore at­tract new jobs and al­lows ex­ist­ing state busi­nesses to ex­pand. Op­po­nents ar­gued that cut­ting tax rev­enues would ex­ac­er­bate on­go­ing bud­get cuts to ed­u­ca­tion, pub­lic health, and other essen­tial ser­vices.

State Econ­o­mist Dar­rin Webb pub­licly panned the idea that over the course of the phased plan, new eco­nomic ac­tiv­ity in the state will fill the rev­enue hole left by the cuts. But the proof of the wis­dom or folly of the plan won't truly be told un­til the phase-in of the cuts are com­plete.

Into that un­cer­tainty came the 2017 fed­eral “Tax Cut and Jobs Act” – the largest fed­eral tax re­vi­sion in decades – with the av­er­age Amer­i­can fam­ily pro­jected to save $2,059 on their next tax re­turn. There is also a 20 per­cent in­come tax de­duc­tion for most busi­nesses and the act elim­i­nates the al­ter­na­tive min­i­mum tax on cor­po­ra­tions.

But crit­ics ar­gue that tax cuts for low to mid­dle in­come in­di­vid­u­als are tem­po­rary, while tax cuts for busi­nesses and cor­po­ra­tions are per­ma­nent. The elim­i­na­tion of the Af­ford­able Care Act is also seen as a long­time neg­a­tive for pay­ing for pub­lic health care in poor states like Mis­sis­sippi.

Be­cause state gov­ern­ment in Mis­sis­sippi helps fund lo­cal gov­ern­ments through shar­ing a por­tion of taxes col­lected, it's im­por­tant to re­mem­ber that Mis­sis­sippi coun­ties heav­ily rely on prop­erty taxes since they don't get a share of state sales taxes (18.5 per­cent of col­lec­tions made within the city) as Mis­sis­sippi mu­nic­i­pal­i­ties do.

So while watch­ing the im­pacts of 2016 state and 2017 fed­eral tax cuts, Mis­sis­sippi state and lo­cal gov­ern­ments are watch­ing the U.S. Supreme Court for a 2018 rul­ing in the so-called Way­fair case. In that case, the court will re­view the 1992 Quill vs. North Dakota case, which held that states gen­er­ally could not col­lect sales taxes from a seller that did not have a phys­i­cal pres­ence or “nexus” in that state.

On Jan. 12, the Supreme Court an­nounced that it will hear a South Dakota case that could re­verse the Quill de­ci­sion and al­low states to re­quire all on­line sell­ers to col­lect sales taxes. South Dakota and 35 other states have asked the high court in South Dakota v. Way­fair to de­clare that the “nexus” or "phys­i­cal pres­ence" rule is out­dated and puni­tive to bricks-and­mor­tar re­tail­ers at a time when Amer­i­cans are in­creas­ingly do­ing their shop­ping on­line.

The out­come of that ju­di­cial re­view should be huge in Mis­sis­sippi, a state in which about 38 cents of every state sales tax dol­lar col­lected is col­lected on sales.

Sid Sal­ter is a syn­di­cated colum­nist. Con­tact him at sid­[email protected]­salter.com.

SID SAL­TER

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