Last summer, the Minnesota Legislature passed the Affiliate Nexus Tax, aka the Amazon Tax, on a mainly party-line vote (they lost a few DFLers). It went into effect last summer and hurt more than 5,200 Minnesota individuals and businesses bringing half a billion dollars of yearly income into the state via Internet advertisements.
After the law went into effect, advertising clients such as Amazon and many others stopped doing business with Minnesotans. The Minnesota website owners and employees paid an estimated $35 million a year in income taxes. The Legislature estimated that the Amazon tax would collect $5 million in sales taxes, but it didn’t account for the loss in income taxes. In the aftermath of the tax, some businesses left the state, some closed and some — including mine — scrambled to find a new income source. I replaced a fraction of the business lost but not all of it.
The primary target of the Amazon tax was Minnesotans who were breaking the law by not paying use tax on Internet purchases. (If you didn’t pay use tax on your Internet purchase, you were likely breaking the law without knowing it.) Legislators wanted to force Amazon to collect the unpaid use tax as sales tax, so they set up the law to make any Minnesota business that accepted advertising from Amazon a “nexus” — that is, a physical presence — in the state. The law went so far as to say that if an out-of-state business, such as an Iowa website, does business with an independent Minnesota businessperson, such as a writer or a graphic designer, it now has a nexus in the state.
When a company has a physical presence in the state, it has to collect sales taxes. Basically, the law says that because my website runs an advertisement from Amazon, I’m part of Amazon.com. As an independent business owner, I can’t imagine the logical loopholes made to come to that conclusion.
While I believe that Minnesotans who owe use tax on their Internet purchases should follow the law and pay the tax, we know the “nexus” law failed. The primary target of the law, Amazon, stopped doing advertising business with Minnesotans. By doing so, it didn’t have to collect sales taxes, because it no longer had a “nexus” in the state. And because the 5,200 Minnesota individuals and businesses with whom it had been affiliated didn’t do as much business overall, they didn’t pay as much in income taxes.
So, Minnesota didn’t collect sales tax from Amazon, is still not collecting the use tax owed by the majority of people who buy from Amazon and has lost income taxes paid by businesses that took the hit.
By any measure, the Affiliate Nexus Tax has failed. It’s time to get rid of this tax and call on Congress to pass the Marketplace Fairness Act, a national solution supported by Amazon and many other large retailers. The U.S. Senate passed the measure with overwhelming bipartisan support, and the proposal is in committee in the U.S. House. Once the Market Fairness Act passes, Minnesota will be able to collect sales taxes from online retailers, Amazon and other companies will have no incentive to stop spending advertising dollars in our state and it will be an even playing field across the nation. By repealing the Affiliate Nexus Tax now, the Legislature can put 5,200 businesses and individuals back to work. It’s the right action to take.
Bryan Hansel, of Grand Marais, Minn., is an Internet marketer.