Despite high hopes, still no windfall for Minnesotans from online retailers' sales tax

A U.S. Supreme Court decision that supporters hoped would level the playing field for small retailers against online-only competitors, while also adding millions to state coffers, hasn't panned out as expected. At least not so far.

The high court's ruling in South Dakota v. Wayfair in June 2018 paved the way for states, including Minnesota, to reverse long-standing precedence and collect sales taxes from sellers that have no physical presence. Sales taxes are the state's second largest source of revenue after individual income taxes.

The Government Accountability Office (GAO) projected that Minnesota could see a potential gain of $132 million more each year as a result of the ruling.

But the expected online sales-tax boon has yet to materialize in Minnesota or other northern-tier states, a new report from the Federal Reserve Bank of Minneapolis asserts.

And consumers continue to choose online shopping over malls and Main Street mom-and-pops.

"Tax statistics boldly confirm that people are shopping with their clicks, not their feet, … the continuation of a deepening and disappointing trend for many local stores and malls," the report said.

The report examined the most recent data on taxable sales in the Federal Reserve's Ninth District — Minnesota, Montana, North Dakota, South Dakota, northwestern Wisconsin and the Upper Peninsula of Michigan.

The state exempts smaller retailers with fewer than 100 online sales or 10 or more sales that total $100,000.

For reasons that aren't yet clear, none of the states examined by the Fed reeled in the expected taxes.

And for retailers that felt they were at an unfair pricing disadvantage with online sellers, the conclusion was equally dim: "The competition remains lopsided," according to the report.

Among its peers in the Ninth District, Minnesota came the closest to hitting projections. It ended up adding about $10.9 million a month; the GAO estimate was $11.5 million per month.

The numbers aren't seasonally adjusted but include the busy holiday shopping season.

It began collecting taxes on purchases sent to Minnesota addresses in October 2014, years before the Wayfair decision. It opened its fulfillment center in Shakopee in August 2015.

Between the time when Amazon first started paying sales tax in Minnesota and 2017, sales from e-commerce and other nonstore sellers in Minnesota grew by 25%, while brick-and-mortar grew 1%, according to the Fed.

The data reflect a continuation of a well-measured trend as mall traffic declines and once-mighty retail anchors such as Sears, Macy's and J.C. Penney hit hard times.

The report does note some successes of brick-and-mortar stores, particularly Target and Best Buy.

"Still," it concludes, "the bottom line is brick-and-mortar retail didn't grow."