Answers to questions about use tax

The following questions were asked in a letter to the editor by Gary Hill in the Sept. 16 Southeast Missourian. These answers were provided by city staff in conjunction with the mayor and members of your city council.

1. What is a use tax (internet sales tax)?

A: It is a local tax on goods purchased out of state for delivery to and use in Cape Girardeau.

2. Is this a new tax?

A: This has to be answered as such: "The use tax shall not be described as a new tax or as not a new tax and shall not be advertised or promoted in a manner in violation of section 115.646."

3. Is this a tax increase?

A: No. The local use tax will always be the same rate as the local sales tax. A use tax is a way to capture tax on items purchased online.

4. What is the difference in a use tax and a city sales tax?

A: A local sales tax is collected by "brick and mortar" retail stores in Cape Girardeau. The local use tax is applied to purchases made from out of state vendors that ship goods to Cape Girardeau customers. These out of state and online businesses do not currently collect local sales tax. Any taxes currently added to online purchases are for Missouri statewide use tax and/or the county use tax, neither of which the city receives any part.

5. Will a purchase ever be charged both a use tax and city sales tax?

A: No. Consumers will never be charged both a local use tax and a local sales tax for any purchase.

6. Will I pay a use tax if I don't shop online?

A: Consumers will only pay use tax for online purchases or if there is anyone who orders by catalog or over the phone.

7. How are use taxes collected?

A: Out of state and online businesses will collect the use tax from consumers when a transaction is completed and remit the tax to the Missouri Department of Revenue who then disperses the tax revenue to the city just as they do with local sales taxes.

8. What is the current city sales tax rate?

A: It is 2.75%.

9. What is the proposed use tax rate?

A: The state of Missouri mandates that the local use tax is applied at the same rate as the local sales tax.

10. Do other cities in Missouri have a local use tax?

A: In 2021, the Missouri Legislature passed Senate bill 153 that allows local jurisdictions to collect on online use tax making us the final state in the United States to implement an economic nexus law. Presently a little over half of all Missouri cities have a local use tax approved by voters. Many of the cities without such a use tax are putting it on upcoming election ballots for voter approval.

11. Why is there a need for a use tax in Cape Girardeau?

A: Currently no city tax is being collected and paid by internet retailers or out of state catalog sales. As in-store purchases decrease, this will put more and more stress on the city's general fund and the ability to deliver quality services.

12. How much revenue is the use tax expected to generate?

A: It is difficult to say exactly how much revenue the use tax will generate as consumer spending is dependent on so many variables. Collecting the use tax, regardless of the amount, will help mitigate the tax leakage due to online sales and help alleviate the adverse impact to the city's general fund.

13. How will the city utilize the use tax revenue?

A: It will be put towards general fund-supported services and operations including, but not limited to, police, fire, street maintenance (pothole patching, snow removal, traffic signal maintenance), parks and recreation services and maintenance, cemetery maintenance, planning/inspection/engineering, and code enforcement. This is essential as currently there is insufficient general fund revenue due to online leakage.

14. What are the consequences if the Cape Girardeau voters don't approve the use tax?

A: Fees for services will increase where possible. The city will be unable to remain competitive in the recruitment and retention of employees. Continuing to lose employees to higher paying jobs will mean the services they provide will suffer. In addition, services supported by the general fund will be reduced or eliminated.