From the Star Tribune, Jim Spencer, April 16, 2018
Minnesotans who’ve avoided paying state sales taxes on online and other kinds of remote purchases could soon see those taxes added to their bills, depending on how the U.S. Supreme Court rules in a widely watched case that will be argued this week.
On Tuesday, the justices will hear South Dakota v. Wayfair Inc., a dispute over a law that expands states’ ability to compel sellers without a physical presence to collect and forward taxes on purchases made by state residents.
Hundreds of millions of dollars in Minnesota sales tax payments hang in the balance as the nation’s highest court wades into the digital economy and state tax collections for the first time in 26 years.
While the case will have national implications, Minnesota’s interest is heightened because the state is home to two of America’s biggest retailers: Target and Best Buy.
Both companies have long complained that online and other remote sellers enjoy an unfair pricing advantage because they often do not charge customers sales tax. Target and Best Buy have growing online stores, but they must pay state taxes on those sales because they have stores across the country.
Minnesota’s public sector is also invested in the case. A November 2017 report by the Government Accountability Office (GAO) said the current taxing system collects roughly 80 percent of what is owed. But the 20 percent that is not collected collectively costs states an estimated $8.5 billion to $13.4 billion a year in taxes. GAO placed Minnesota’s loss between $132 million and $206 million annually.
“What’s at stake is the ability of states to require more vendors to collect sales tax,” said University of Nebraska law Prof. Adam Thimmesch, whose research focuses on state taxes and collection issues. “The court’s doctrine has not kept pace with technology.”
The prevailing precedent dates to 1992 and says companies must have some sort of physical presence in a state before they are obliged to collect and forward sales taxes from customers who are residents of that state. The court implemented the standard before internet commerce exploded, Thimmesch noted, and has not updated it since.
Minnesota is among the nation’s leaders in trying to expand sales tax collections from remote purchases. Last year, the state passed a law that will in some cases make operators of virtual marketplaces such as Amazon, Etsy and eBay collect and forward sales taxes from sellers who use their internet platforms. The law takes effect in 2019, but collections could begin sooner based on what the Supreme Court decides in the South Dakota-Wayfair case.
In Minnesota, supporters of online sales tax collection extend across party lines. State Sen. Roger Chamberlain and state Rep. Greg Davids, Republicans who chair the money committees in St. Paul, backed the new internet sales tax collection law.
Both men stress their anti-tax credentials, but both say the Minnesota law and the upcoming Supreme Court case are not about new taxes. Instead, Chamberlain and Davids say, it is about money already owed but not being paid. They want to establish equity between Minnesota Main Street businesses and internet sellers who are not charging buyers taxes they are legally obliged to collect.
For much the same reason, Minnesota Attorney General Lori Swanson, a Democrat, joined two friend of the court briefs in support of South Dakota.
Minnesota Commissioner of Revenue Cynthia Bauerly, a Democrat, said her department “supports efforts to ensure that businesses pay the sales tax owed under current law, regardless of whether that purchase is made online or in a brick and mortar store.”