Tucked into the tax bill that cleared the Legislature before its midnight adjournment is a measure to compel Amazon and a few other online retailers to apply the state's 6.85 percent sales tax to consumer purchases, just as Minnesota-based retailers must do.
The "e-fairness" requirement, known in tax policy parlance as the affiliate nexus redefinition, treats online retailers with affiliates in Minnesota as if those affiliates were the retailer itself. That change has long been sought by the state's retailers, including Target and Best Buy.
That generates a modest $9.7 million increase in the state's 2014-15 budget. It's also as far as the courts have allowed states to go in collecting sales taxes from online retailers based elsewhere. But Congress could change that. On May 6, the U.S. Senate gave bipartisan approval to a bill that would allow states to impose their sales taxes on all online purchases, regardless of the seller's location. The Republican-controlled U.S. House is cool to that measure, but its members are under heavy pressure from bricks-and-mortar retailers to change their minds.
If that should happen, Minnesota is ready. The tax bill that the Legislature sent to Gov. Mark Dayton includes language that would allow the state to quickly begin collecting online sales taxes after a congressional green light. That's for good reason: The state stands to gain a whopping $400 million per year if it could tax all online retail sales.
Should that happen, it will reopen the sales tax reform question that was shelved at the end of the 2013 session. An additional $800 million in sales tax revenue per biennium would allow his state to rely more on the sales tax, and less on competitively troublesome income taxes, without the political angst that rises at any suggestion of applying the sales tax to clothing and services.
State Revenue Commissioner Myron Frans observed recently that tax reform is more easily accomplished when the state has a surplus. I'm not sure. Surpluses ramp up political demands for tax cuts, not reform. But I am sure that an online sales tax windfall courtesy of e-fairness would give legislators and the governor fresh reason to consider ways to make Minnesota's taxes more competitive.