Proposition S - Use Tax
The City of Ferguson will hold an election on Tuesday, August 4, 2020 for proposition consideration.
Shall Ferguson, Missouri be authorized to impose a local use tax at the same rate as the local sales tax by a vote of the governing body, provided that if any local sales tax is repealed, reduced or raised by voter approval, the respective local use tax shall also be repealed, reduced or raised by the same action? A use tax return shall be filed pursuant to applicable provisions of Missouri Law.
What Is a Use Tax?
In simple terms, a use tax is a sales tax imposed on the purchase of goods by Missouri residents from out‐of‐state vendors. The use tax is applied to the same type of products subject to traditional sales tax. The difference being where the goods are purchased and shipped to. When individuals make purchases at retail stores in Missouri they pay the sales tax that is applicable at that location. On the other hand, purchases by Missouri residents from out‐of‐state vendors that are shipped to Missouri are subject to the use tax. In general terms, a sales tax rate is based on the point of sale, while a use tax rate is based on the point of delivery.
What Is The Rate of the Use Tax?
The use tax rate may not exceed the sales tax rate. The state of Missouri imposes a sales and a use tax at the rate of 4.225 percent. The City of Ferguson imposes a local sales tax at a rate of 1.50% and, assuming passage of Proposition S, would have the ability to impose a use tax at that same rate. If the City’s local sales tax sunsets or is repealed, the use tax would decrease in an amount equal to the sales tax that repealed.
What If I Buy Something from a Missouri Retailer Using the Internet; Will The Use Tax Apply?
No. The use tax does not apply to purchases made by Missouri residents from a Missouri retailer. The use tax applies to purchases from out‐of‐state vendors. If a Missouri resident buys a product from a Missouri vendor over the Internet, a sales tax should be collected based on the vendor’s location.
Now that Amazon has announced it will collect Missouri Use Tax won’t our city revenue increase?
No. The City’s use tax revenues increase from Amazon sales only after it has passed the local option use tax.
Would Passage of the Federal Marketplace Fairness make passage of a Local Use Tax Unnecessary?
No. The Marketplace Fairness Act is federal legislation that would require vendors across the nation to collect the use tax on behalf of their consumer’s state of residence and only cities that have passed the use tax would benefit from such Federal legislation. Even if the Federal government passes Marketplace fairness, state level action will still be needed to standardize Missouri’s state and local sales taxes. Issues such as product exemptions, sales tax holidays and domestic utilities will likely need to be resolved.
What About Vehicle Purchases? Are They Treated Differently Than Other Purchases?
Yes, the purchase of vehicles, trailers, boats, and outboard motors are treated differently than other retail purchases. The sales tax on these purchases is based on the location at which the item is registered. When Missouri residents purchase a car at an auto dealership, no sales tax is paid on the purchase. Instead, when the resident goes to license the vehicle, trailer, boat or outboard motor with the Missouri Department of Revenue, the local sales tax will be imposed based on the address of the registrant, unless exempted.
What Was the Street Decision?
On January 31, 2012, the Missouri Supreme Court ruled in Street vs. Director of Revenue, 361 S.W.3d 355, that purchases of vehicles (and boats, trailers and outboard motors) from out‐of‐state vendors should be exempted from the local sales tax. The court ignored the special legislation that had been built around vehicle purchases to insure that all cities shared in the sales tax distribution on vehicle sales instead of just those cities with car dealerships. The court found that only cities with a local use tax could collect local sales tax on a vehicle purchased from out-of-state. Purchases from Missouri auto dealers were still subject to the local sales tax. The Missouri Department of Revenue estimated that approximately 20 percent of vehicle (and trailers, boats and outboard motors) sales occur from out‐of‐ state vendors or person‐to‐person sales and this would result in a loss in revenue to local jurisdictions of approximately $20.5 million. The Missouri Department of Revenue provided data showing the estimated loss to the City of Ferguson would have been about $26,600 in 2015.
What Was the Response to The Street Decision?
In response to this court decision, cities sought relief from the Missouri Legislature. In 2013, the Legislature passed SB 182. This legislation re‐imposed the local sales tax on vehicle sales (and person‐to‐person sales). Ultimately, this legislation requires cities who did not have a use tax in place prior to August of 2013 must receive voter approval to continue this administrative fee.
What Does Our City Need to Do to Plug the Street Decision Loophole?
Passage of Proposition S will enable the City to continue collecting this revenue.
How Much Revenue Will A Use Tax Generate in the City of Ferguson?
The Missouri Department of Revenue (MO DOR) has a web site which includes a Public information Report page (http://dor.mo.gov/publicreports/#pubtax )Based on 2017 MO DOR data, passage of Proposition S would most likely generate annual use tax collections of about $30,000 plus an additional $26,000 for motor vehicle tax to the City of Ferguson.