A state Supreme Court decision that affects the collection of local sales taxes on the sale of some vehicles could have far-reaching impacts on local governments and car dealerships.
The Missouri Supreme Court ruled Jan. 31 that local sales taxes can only be levied on vehicle sales occurring within the state.
The ruling was issued in the case of Craig A. Street v. The Department of Revenue.
State and local sales taxes for motor vehicles, boats, trailers and recreational vehicles are collected at the time of registration. The court ruled that the local sales tax — county, municipal or other entities — can’t be collected on vehicles purchased outside of Missouri.
State sales taxes, at the rate of 4.225 percent, still will be collected on all vehicles registered to Missouri residents.
For example, if a vehicle is purchased in Illinois the buyer is not subject to the municipal sales tax, only state sales tax. If a vehicle is purchased in Missouri, for the same price, the buyer still is required to pay the local sales taxes.
The result could be thousands of dollars higher tax expenses for vehicles purchased within the state.
According to Franklin County Commissioner John Griesheimer, that could have a devastating impact on both revenue for cities and counties, but also could result in a loss of sales for dealerships in Missouri.
“I think they (Supreme Court judges) were all drunk,” said Griesheimer. “I can’t believe they would disallow sales tax to be collected — the state gets its taxes but we don’t get ours?”
The Supreme Court ruling also prohibits the collection of local sales taxes of vehicles sold by individuals, regardless in which state the vehicle was purchased.
Option Use Tax
There are some municipalities and counties that still will receive local taxes for vehicles purchased out of state, including the city of Washington.
Those are counties and cities that impose a voter-approved local option use tax. There are only 176 entities within the state that impose those voter-approved taxes.
Griesheimer noted, for the county, that the sales taxes support the general operations, roads and bridge upkeep and law enforcement.
“That is going to be a huge hit,” he said.
He added that dealers within an hour of border states, including in Franklin County, are most at risk of losing buyers to out-of-state dealers.
“I can see that happening a lot,” Griesheimer said. “It is going to affect our area and local dealerships will lose business.
“People are obviously going to save money by going to Illinois,” he added.
Griesheimer explained that there is a sense of urgency with state legislators, but there is “no easy fix.”
“I have been speaking with legislative leaders who said if they can come up with a fix, they will run through the House and Senate this session,” he said.
However, the legislation might not supersede the Supreme Court ruling.
“It may be that the only fix we have is to put in a use tax,” he said. “But it will be very difficult to convince voters to approve it.”