Wright City aldermen are debating the benefits of a tax proposition that would apply the city’s sales tax rate to items that are purchased online from out-of-state sellers.

A preliminary discussion on whether to propose such a tax, which is called a “use tax,” was held at the city’s Sept. 9 board of aldermen meeting. Any such proposition would require public approval in an election.

Right off the bat, aldermen identified several points of discussion that are likely to cause significant public confusion about what a use tax is and how it works.

What a use tax is, and what could change

Simply put, a use tax is essentially similar to sales tax, except it’s applied to items purchased from out of state. Items aren’t double taxed; the buyer either pays the sales tax rate at the point of sale, or the use tax rate at the point of delivery.

Until this year, Missouri’s use tax system was based on people voluntarily reporting their purchases of items over $2,000 and paying the appropriate tax, said Paul Rost, city attorney for Wright City.

“About three people actually did that,” Rost joked, describing that system as archaic in the age of internet retail.

Because of this system, items purchased online from out-of-state sellers were potentially not subject to any sales tax at all, which brick-and-mortar store owners have called an unfair advantage.

State legislation passed earlier this year is changing that system. Nicknamed the “Wayfair” law after a 2018 U.S. Supreme Court case, the law allows local governments to apply their use taxes to online purchases. In effect, this would look the same as when sales tax gets added to a purchase.

Missouri is the last state to implement a Wayfair law, according to Governor Mike Parson’s office. The Wayfair law won’t go into effect until 2023.

What that means for Wright City

The hurdle Wright City now faces is that a local government has to already have a use tax in place in order to apply that tax to online sales. Wright City doesn’t have a use tax, and creating one requires a vote of the people.

Thus, Wright City aldermen are debating whether to place a use tax proposition on election ballots next April.

The benefits are that local retailers would be on an even playing field with online sellers, and the city government would get a little more revenue for public services. The cost is that local residents would be paying a little more for online shopping.

Rost clarified that any business that already has a physical location in Missouri is already collecting state and local sales taxes on online sales. Only orders from out-of-state sellers would be affected by a new tax.

“It’s the eBays of the world ... it’s the retailers that don’t have a presence in Missouri, but they’re selling stuff to Missourians. That’s what this tax hits,” Rost explained.

Members of the board of aldermen said they need more time to untangle all the ramifications of an online tax and get public feedback. They’ve scheduled a lengthier discussion of the issue for early October.

“I’d like to talk to some of the businesses and some of the residents” before placing the issue on an election ballot, said Alderman Ramiz Hakim.

Alderman Michelle Heiliger said an online use tax seems like a viable option to boost the city’s revenue, but that aldermen should take more time to examine the issue.

If a use tax does get put on the ballot, only Wright City’s 1.75-percent portion of tax collections would be in question. Wright City residents could end up paying the Missouri and Warren County tax rates on their online purchases either way, because those use taxes are established independently.

If a Wright City use tax is proposed, it would be placed on election ballots in April 2022.