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What’s in a name? that which we call a rose
By any other name would smell as sweet;
~ Romeo & Juliet, Act 2 Scene 2

The Internet Sales Tax is not a new issue in Minnesota. Traditional brick-and-mortar retail stores have been lobbying for it in St Paul for many years. (Many of the same retailers at the Mall of America attended the same hearing to oppose the sales tax on clothing – its easy to tax the “other guy”.) In past years, there has never been enough support in the Legislature to force online retailers who do business in Minnesota to charge sales tax.

BakkThat may be changing. Senate Majority Leader Tom Bakk (D-Cook) says the so-called “affiliate nexus” tax is a top priority for business groups, and Revenue Commissioner Myron Frans is a big fan:

Everyone believes that the main street businesses in Minnesota have a competitive disadvantage with those folks selling over the Internet, and that’s something we should definitely address. (Well, not “everyone”, Myron, but we get it.)

There is a form of an online sales tax already in place in Minnesota, but it is not well-known. A KARE-11 story exposes part of the “problem” with taxing on-line sales.

Minnesota currently relies on individual consumers to voluntarily send sales tax payments to the state when they buy things from online retailers. That Individual Use Tax kicks in when your Internet purchases total more than $770 in a calendar year.

According to the KARE story, only 800 people a year file the form and pay the tax. Relying on the honor system to collect taxes is a stupid way to go about taxation.

Every Rose Has It’s Thorns

When you think about it, $770 over the course of a year is not very much. One example: buy a $250 iPod online and download $40 per month worth of music/movies/apps, and you are almost there. Order a carry case and some good headphones, and you are over the limit – now go have your 16 year old fill out that UT-1 form, and fork over your 7.652%…

thorns2Trying to figure out this kind of a tax on activity gets infinitely worse. Say, for example, I live in Minnesota, but I am on vacation on the beach in Florida, and I go online from my smartphone and order a birthday present from a seller in California for my fourth cousin in Omaha and have it shipped to his house. Which state has the right to charge me sales tax? (Minnesota, Florida, Nebraska, California, or All of the Above?)

Beyond that, the GOP is not generally in favor of raising any taxes. We’re supposed to be the party of smaller, more efficient government, and less spending, not more revenue. In my opinion, “tax reform” would be more people paying taxes, so that everyone could pay less. But the Internet Sales Tax at the State level is a terrible way to accomplish this. One state charging sales tax on internet purchases will discourage people from doing business in the state. If there is going to be a tax on Internet purchases, it should be federally mandated, so that the playing field is even for all sellers and all buyer in all states.

Where Is That Smell Coming From?

We generally expect our DFL friends to be in favor of raising taxes.  It is troubling to find that the GOP is leaning in favor of it. CBS reports that:

The online sales tax push has more force behind it. Republicans have backed it in the past, and the major business groups with a Capitol lobbying presence are on board. Supporters argue that it is not a new tax but a matter of compliance because purchasers are technically required to pay the tax, although few do and enforcement is lax.

In a MinnPost Story, we find that the GOP may have support for the bill, but the supporters are not named.

Republicans on the committee offered some support for the online tax bill but pushed back against expanding sales taxes.

Relying on news reporters is ultimately unsatisfying. Since this was a subcommittee hearing, no votes were taken, only testimony and comment, so it is difficult to ascertain where the reported “Republican support” is coming from. A South Dakota story says the Minnesota sales tax on clothing is “more controversial,” but makes it hard to gauge the level of GOP support for either proposal.

Dave ThompsonIn one story, Deputy Minority Leader Dave Thompson called it a “compliance issue.” In another, he said, “It has never made sense to me that we should put our Minnesota businesses at a disadvantage.” If he is speaking for the Republican Caucus, this is troubling indeed. The Internet Sales Tax is not a compliance issue, it is a tax, just like a “user fee,” a “license fee,” and a “health impact fee” are taxes.

A tax is a tax, by any other name, and taxes generally stink.