States, retailers push to end online tax loophole
ST. PAUL, Minn. (AP) — If you buy a book, computer or some other taxable item at a store in Minnesota, you'll pay a sales tax of about 7 percent. Shop for the same item on the Internet, and it's not hard to find a merchant that doesn't charge sales tax and offers free or cheap shipping.
But an alliance of cash-strapped states and angry brick-and-mortar retailers including Minnesota-based Best Buy Co. Inc. and Target Corp. is trying to prod Congress to close a loophole that allows online sales to escape state sales taxes, Minnesota Public Radio reported Thursday (http://bit.ly/sDwTCz).
Best Buy, Target and other chains are lining up behind a bill that would allow states to require all online retailers to collect sales taxes. Minnesota and other states are backing the legislation, hoping to recover an estimated $23 billion in sales taxes that now go uncollected.
Neal Osten, Washington director for the National Conference of State Legislatures, said states have never had a greater need for more power to collect sales taxes.
"Probably half the states will face budget gaps in the coming fiscal year for 2012 and then for 2013," he said. "And with the deficit reduction efforts in Congress at the federal level, we anticipate states are going to lose hundreds of billions of dollars in state-federal programs."
Paying sales taxes for online purchases would be a change for shoppers like Tim McKinney, of St. Paul.
"I tend to get around them most of the time," McKinney said. "Since a lot of people do not have to usually pay the sales tax, I prefer not to."
But lost sales tax revenue costs the state as much as $400 million a year, Revenue Commissioner Myron Frans said. He said Minnesota probably faces another big deficit and can't afford to let so much revenue get away.
"We clearly have needs at the state and local level to fund government and we need to collect the revenue where it is due," he said.
The problem is that under current laws, retailers that aren't physically present in a state don't have to collect that state's sales taxes. It's up to buyers to pay any sales taxes owed on their purchases.
Efforts to get them to pay voluntarily haven't worked. About eight years ago, Michigan spent $10 million to educate residents about their obligation to pay sales taxes on catalog and online purchases. According to the National Conference of State Legislatures, Michigan collected only $1 million in taxes from online sales the following year. Last year, 734 people come forward to pay Minnesota for uncollected sales taxes, amounting to $371,000.
"I've been surprised by how many people simply are not aware of the tax obligation," Frans said.
Best Buy, Target and other big retailers with stores nationwide do collect sales taxes on both in-store and online sales. They're legally bound to collect sales taxes on an online purchase if they have a store in the buyer's home state. But online-only competitors often skip collecting sales taxes in states where they have no stores, warehouses or other physical presence.
Laura Bishop, Best Buy's senior director of government relations, told a legislative committee earlier this year that the sales tax loophole gives online-only merchants a significant edge by letting them sell at a lower total cost to the consumer.
Osten said support for closing the loophole has never been stronger. Even the online-only giant Amazon.com is on board, he said.
"They've always said that they would be willing to collect when everybody has to collect," Osten said.
Information from: Minnesota Public Radio News, http://www.mpr.org
Copyright 2011 The Associated Press.