E-Fairness bill: It’s about compliance, not a new tax, backers insist

Sen. Geoff Michel
Sen. Geoff Michel

If something such as the E-Fairness legislation looks like a new tax and increases state revenues as a new tax would, isn’t it a new tax?

And if it’s a new tax why were such Republican legislators as Sen. Geoff Michel and Rep. Pat Garofalo standing with DFLers and a host of Chamber of Commerce people and small-business owners supporting a measure that would add $10 million to the state’s general fund in the next biennium?

“This is not a new tax,’’ insisted Michel of a proposal that would require Internet retailers such as Amazon to charge a 7 percent sales tax on items sold in Minnesota. “This is about tax compliance, about tax enforcement (of existing tax law). We need to update the tax code.’’

On a lovely spring morning, an unusual grouping of Republicans, DFLers, shop owners, representatives of about every business and retail organization in the state, pushed the Legislature to act on a bill that would require national online retailers with “affliliates’’ in the state to start collecting the sales tax now collected  by Minnesota retailers even when their customers order on line.

“Amazon needs to play like we play,’’ said Roberta Bonoff, owner of the St. Paul Creative Kidstuff shop where a media event was staged this morning.

Few pay the voluntary tax

Currently Minnesotans are supposed to voluntarily pay the sales tax – by filling out a specific tax form – when their online purchases exceed $770.

Not surprisingly, this system is not working. Revenue Commissioner Myron Frans said that in 2010 about 700 Minnesotans volunteered to pay the tax, which amounted to “hundreds of thousands of dollars’’ in revenue for the state.

The E-Fairness legislation, which has the support of Gov. Mark Dayton, likely would mean about $10 million in revenue in the next bienium, according to Frans.

Just as importantly, according to a handful of retailers who spoke this morning, the legislation would at least help both big box stores, such as Best Buy, and small-business owners compete with the likes of Amazon.

Locals start off with a 7 percent deficit

As it is, a small shop such as peapods, a St. Paul store offering “green’’ toys and other products for children, starts off with a 7 percent deficit when competing with the large online companies.

To add insult to injury, peapod co-owner  Dan Marshall said, Amazon even has developed a phone application in which customers can come into a shop such as peapod, scan the store’s price and Amazon will counter with its price comparisons.

Every small retailer, Marshall said, now has the experience of shoppers using main street stores as “showrooms’’ to get the look and feel of a product. Once they check it out, they often make their purchase online.

Garofalo had a word for Minnesota’s current system.

“Stupid,’’ he said.

Main-street businesses pay property taxes, hire Minnesotans to work for them, pay state income taxes, sponsor Little League teams and, in the end, the state has a system that essentially subsidizes businesses that make no investment in Minnesota.

System goes back to catalog days

The current volunteer-to-pay-the-tax system, by the way, precedes the Internet revolution. It goes back to the days of catalog shopping.

But clearly the development and expansion of Internet shopping has fueled this push for a change in the system. Recent stats show that nationally Internet purchases now amount to 10 percent of retail sales and the number will only increase.

The small retailers this morning said that even a “level playing field’’ on sales taxes won’t suddenly make them price competitive with the national online giants. But it would at least be a start.

Rep. Tim Mahoney, DFL-St. Paul, said that IF the E-fairness bill could get to the floors of the House and Senate, it would easily pass on a bipartisan basis.

But getting there could be the problem.

‘Sometimes good ideas get lost’

Michel talked of the unpredictability of the last weeks of a session.

“Sometimes good ideas get lost,’’ he said.

There also is the reality that there is a segment of conservative Republicans who believe that this may be fair, but if it looks like a tax increase, then it must be stopped.

Michel, who is ending his Senate career at the end of this session, said he is among those Republicans who have taken the no-new-tax pledge.

“My wall is full of things from Phil Krinkie (head of the anti-tax Minnesota Taxpayers League) and Grover Norquist,’’ Michel said. “This is not a tax. This doesn’t raise a tax. It’s actually a jobs bill.

It’s about compliance and Minnesota jobs.’’

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Comments (11)

  1. Submitted by Dennis Tester on 04/12/2012 - 01:49 pm.

    If it’s about

    increasing the cost of goods and services to people who buy online and the increase goes to the government, it’s a new tax.

    • Submitted by Sean Huntley on 04/13/2012 - 09:07 am.

      In no way shape or form is it a “new” tax. The tax has always been there, but nobody was paying it. Your comment is like saying someone who evaded paying income tax for years then getting caught and having to comply with the law is paying a new tax.

  2. Submitted by Clark Bremer on 04/12/2012 - 03:41 pm.

    Most Businesses already pay this, as “use tax”.

    As a small business owner (construction), it will certainly make my life easier if I can just pay the sales tax when I buy the item. I just finished going through my ledger looking for out-of-state purchases, like Amazon, so that I could make my quarterly “use tax” payment.

    • Submitted by Rachel Kahler on 04/12/2012 - 05:33 pm.

      Exactly

      We’re in a digital age, where companies regularly do business via interstate sales. If you’re doing business in a state, you should know the tax code there. Since most businesses already have sales tax built into the system for in-state purchases, it shouldn’t take a lot of effort to plug it into their systems for out of state. Yeah, a pain in the butt, and yeah, more paperwork for the business, but really…consumers are supposed to record all of their internet purchases and calculate it later? I think not.

    • Submitted by Dennis Tester on 04/12/2012 - 08:39 pm.

      You and three other businesses

      actually pay the “use tax.”

  3. Submitted by Logan Foreman on 04/12/2012 - 04:40 pm.

    Easy Michel

    Just call In Pawlenty and have him declare it a fee. Problem solved. Pathetic

  4. Submitted by James Hamilton on 04/12/2012 - 07:43 pm.

    This is an issue for federal legislation.

    Clearly, we’re talking about interstate commerce here, commerce which permits residents to circumvent state sales tax laws, to the disadvantage of businesses which have a physical presence in the state and create jobs within the state, and the disadvantage of the state and its residents. Where federal law once provided a tax-haven for online retailers, the time has come to reverse federal law and required retailers to collect and submit sales taxes to every state to which they ship product.

    And, no, it’s not a new tax. It’s a tax that online buyers have been able to evade for many years.

  5. Submitted by Larry Copes on 04/13/2012 - 07:59 am.

    Other costs for small businesses

    I agree that the old policy is out of date. But as a very small business owner, selling only my own software to students without much money, I can’t help but wonder how much it would cost me to make this change. Besides the cost of having my online store changed to collect taxes, I couldn’t really raise the price for students, so I’d have to collect less for myself. And then I’d have to take the time to keep track of the tax collected and send it to the state. Is anyone taking these costs into consideration?

  6. Submitted by Howard Salute on 04/13/2012 - 10:08 am.

    Sales Tax

    The current sales tax system is unfair to ‘brick and mortar” businesses. However, requiring a small business to file and remit sales tax to all the various taxing jurisdictions is onerous and not cost effective. I propose all internet sales get run through a “3rd party remitter”. When an internet sale is made there would actually be two transactions. One transaction for product and one transaction for tax (a new transaction). Internet business would continue to sell product as they do now. The “3rd party remitter” would collect tax at the time of sale, capture the taxing jurisdiction then file and remit sales tax to the proper taxing jurisdiction.

  7. Submitted by Stan Hooper on 04/13/2012 - 11:53 am.

    Not a “new” tax issue — it’s all about revenue

    Whatever is said about getting online vendors to collect and pay a sales tax, it’s nothing about whether a new tax is added, it’s about scrambling for revenue for the state’s coffers. Because there is a dogma about not creating new taxes, there is a lack of adequate revenue flowing to the state’s inadequate balance sheet, so our distinguished legislators scramble and grovel for whatever revenue they can dream up so that they won’t damage their unconscionable no-new-tax mantra.

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