This week, a group of independent trade associations joined to urge Minnesota Gov. Tim Pawlenty to support Internet sales tax legislation included in the omnibus tax bills currently being considered in conference committee.
"This legislation clarifies existing sales tax laws," said ABA COO Oren Teicher. "Any for-profit retailer or sales agent in Minnesota that sells to a Minnesota resident is bound by law to collect and remit sales tax on that sale. A business in the state should not be allowed to practice sales tax avoidance by filtering the orders they solicit and receive commission for through an out-of-state entity. Allowing these companies to skirt existing laws is devastating to all of Minnesota's retailing start-ups and the local shops on Main Street, which are put at a competitive disadvantage right out of the gate. Furthermore, the current inequitable situation deprives communities throughout the state of sales tax money that goes to help support fire fighters, police officers, and teachers. "
In the letter to Gov. Pawlenty, the groups -- the American Booksellers Association, American Specialty Toy Retailing Association, Music Dealers Buying Group, Music for Everyone Association of Independent Music Centers, National Bicycle Dealers Association, and the NORCAL Music Coalition -- noted that in the current economic crisis Minnesota faces a projected mid-year budget gap of $426 million and stressed that, now more than ever, it's the state's obligation to ensure sales tax equity.
In their letter to the governor, the trade groups noted: "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, rather, 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." (Read the full text of the letter.)
The trade groups are also calling on their member retailers in Minnesota to e-mail the governor to encourage the enforcement of existing sales tax laws.
To make this communication easier, ABA has prepared a template letter that can be adapted and sent. The association asks businesses that contact their governors to send a copy of the letter to ABA Public Policy Liaison David Grogan at email@example.com.
May 7, 2009
The Honorable Tim Pawlenty
Office of the Governor
130 State Capitol
75 Rev. Dr. Martin Luther King Jr. Blvd.
St. Paul, MN 55155
Dear Governor Pawlenty:
This is not a typical letter from a special interest group. As trade associations representing thousands of Minnesota businesses, we are not asking for money or requesting that you do anything. In fact, we are writing to let you know how the state can garner a projected $11.2 million in new revenue in FY 2010, and over $13 million next year -- without raising taxes and by simply enforcing the law. The state can do so by closing a tax loophole by supporting the Internet sales tax legislation currently under consideration in the omnibus tax bill.
Considering the current economic crisis, coupled with the state's projected mid-year FY 2009 budget gap of $426 million, we believe that, now, more than ever, it's the state's obligation to ensure sales tax equity. We are 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 refuse 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.
The tax avoidance being practiced by these out-of-state retailers is unfair to those retailers throughout Minnesota that are collecting sales tax for online sales. And 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, 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. We 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 merchants with e-commerce operations collect and remit sales tax, and so should out-of-state retailers with nexus in the state through online affiliates.
When the state allows these out-of-state 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, rather, 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.
Avin Mark Domnitz, CEO
American Booksellers Association
200 White Plains Road
Tarrytown, NY 10591
Kathleen McHugh, CAE, President
American Specialty Toy Retailing Association
116 West Illinois Street, 5E
Chicago, IL 60654
Music Dealers Buying Group Inc., &
NORCAL Music Coalition
730 29th St., Apt 208
Oakland, CA 94609-3590
Johnny Thompson, Chair
Music for Everyone (MFE)
Association of Independent Music Centers
c/o Johnny Thompson Music
222 East Garvey Avenue
Monterey Park, Ca 91755
Fred Clements, Executive Director
National Bicycle Dealers Association
3176 Pullman St. #117
Costa Mesa, CA 92626