The Honorable Tim Pawlenty
Office of the Governor
130 State Capitol
75 Rev. Dr. Martin Luther King Jr. Blvd.
St. Paul, MN 55155
As an independent bookseller based in [CITY], I am asking that you address a serious issue of business equity and fiscal prudence as it relates to the collection of state sales tax for online sales. Currently, some out-of-state retailers with nexus in Minnesota are refusing to comply with existing state sales tax law and are not collecting and remitting state sales tax for sales to residents of Minnesota. We are urging you to close this tax loophole now by supporting the Internet sales tax legislation currently under consideration in the omnibus tax bill.
Not only is the tax avoidance being practiced by these out-of-state retailers unfair to the retailers throughout Minnesota that are collecting sales tax for online sales, but it has clear economic implications for the state, especially considering the current economic climate. According to the Center on Budget and Policy Priorities, at least 47 states faced or are facing shortfalls in their budgets in 2009 or 2010, and severe fiscal problems are highly likely to continue into the following year as well. Combined budget gaps for the remainder of this fiscal year and state fiscal years 2010 and 2011 are estimated to total more than $350 billion. Our own state reported a mid-year FY2009 budget gap of $426 million, according to the center.
These numbers are only going to get worse if states unintentionally continue to subsidize out-of-state businesses by allowing remote merchants with nexus in the state to skirt existing tax laws, thereby letting millions of dollars in sales tax revenue go uncollected. Now more than ever, Minnesota has an obligation to ensure sales tax equity.
Federal law clearly defines nexus as a retail store, warehouse, office, or sales agent. I believe it is indisputable that any out-of-state online retailer that has one or more affiliates based in Minnesota -- affiliates that clearly act as solicitors on the online retailer's behalf and earn commissions based on sales -- has nexus in our state. These out-of-state online retailers should therefore be charging sales tax. Minnesota booksellers that have e-commerce operations collect and remit sales tax, and so should merchants outside our state that have nexus in the state.
When the state allows these online retailers to continue their sales tax avoidance practices, Minnesota's citizens are the primary losers, as potential tax revenue is uncollected -- monies that fund such essential services as schools and first-responders. According to a recently published University of Tennessee study, State and Local Government Sales Tax Revenue Losses From Electronic Commerce, in 2008, the total state and local sales and use tax revenue loss resulting from failure to collect current taxes on e-commerce sales in Minnesota was $159.6 million in 2008. As online shopping continues its robust growth, this figure is expected to balloon to more than $235.3 million in 2012. Furthermore, the study stressed that this failure to collect taxes that are due has put local retailers at a competitive disadvantage to e-commerce competitors as "consumers browse on Main Street but then make their purchases online to evade the tax."
In 2008, New York State signed into law a provision that required out-of-state merchants that have clear nexus in the state to collect and remit sales tax. Though the provision was initially challenged by Amazon.com, a New York State Supreme Court judge dismissed the online retailer's lawsuit. Amazon.com is currently collecting New York sales tax and has maintained its affiliate network in the state.
The time for Minnesota to act is now. The results of sales tax inequity can be seen in the many empty storefronts on Main Streets throughout Minnesota. Sometimes, however, it doesn't result in a store closure, but it in lost sales tax through decreased sales and lost income tax through job cuts. A downturn on Main Street creates a ripple effect that echoes throughout our state's economy. In the end, it's the residents of Minnesota who shoulder this burden through higher property or school taxes. So it's important to understand that when out-of-state retailers with affiliates in our state shirk their responsibility to collect and remit sales tax, it doesn't just affect a few small businesses here or there, it hurts the state's entire economy.
The bottom line is, I am simply asking for a level playing field while out-of-state, online giants wish to maintain an unfair competitive advantage. At present, by not enforcing sales tax laws, our state is providing out-of-state retailers with a 6.5 percent advantage right out of the gate.
Thank you for your consideration.
[NAME]
[STORE NAME]
[ADDRESS]
[CITY][STATE][ZIP]
[PHONE NUMBER]
[EMAIL ADDRESS]