As of Oct. 1, Minnesota shoppers on Amazon.com might have noticed a change at checkout that they may not have welcomed — but we do. A 6.875 percent state sales tax charge should be included in the total cost of their order. Time-of-purchase sales tax collections — something Amazon sought to avoid through several legislative sessions — are suddenly the rule for the big online seller’s Minnesota customers.
This change is not the result of the long arms of the Legislature and Gov. Mark Dayton finally catching the online retailing giant, much as they might wish it had been. Their attempt in 2013 to compel out-of-state online retailers with in-state affiliates, Amazon among them, to collect sales taxes resulted in Amazon abruptly severing ties with those affiliates. Those small online businesses paid an unfairly high price so that Amazon could keep refusing to add a sales tax on Minnesota sales.
This week, Amazon is reversing itself — of its own volition. Evidently, it is building a “physical presence” in Minnesota. That triggers a legal obligation to collect taxes on Minnesota sales, as any store on a Minnesota Main Street would. The company is also welcoming Minnesota affiliates back into its fold. Exactly what Amazon is building has not been disclosed. “We’re considering various opportunities and plan to expand in the state,” is all that company spokesman Ty Rogers would say last week about its intentions.
State Revenue Commissioner Myron Frans is similarly mum about the plan, but he’s crowing about its significance to the state’s economy. “This is a real endorsement by Amazon of Minnesota’s strong economy and business climate,” Frans said. “Minnesota is really leading the Upper Midwest in terms of economic growth. I think they felt that the opportunity to service this market required them to be here physically.”
We appreciate Frans’ boosterism. But we suspect that the changing nature of online retail competition is the main driver of Amazon’s decision. Increasingly, retailers are competing on speed of delivery as well as price. Amazon likely has concluded that keeping its market share will require siting distribution centers in many more places, not just Minnesota. As a result, the company that fought collecting state sales taxes so fiercely is now shrugging them off as competitively unimportant. “Amazon offers the best prices with or without sales tax,” Rogers said.
That assurance might not soothe Amazon customers who think they are being charged a new tax. They should be advised: They are not. They have always owed the state a 6.875 percent tax on all their purchases of taxable items. But when an online retailer does not collect the tax, the law says its Minnesota customers should pay up after the purchase. That law is surely among the most commonly disregarded statutes on state books. Since compliance is not enforced, the tax is seldom paid.
The upshot has been a competitive disadvantage for businesses Minnesotans should want to support — those that create jobs here, pay taxes here, and contribute to civic and charitable causes here. The penny-wise online shoppers seeking to avoid paying sales taxes are contributing to a pound-foolish weakening of some of this state’s best corporate citizens.
U.S. Supreme Court decisions handed down at the dawn of the Internet age have deprived states of the ability to require sellers not physically present within their borders to collect their taxes. The explosive growth of online retailing since then has rendered those rulings obsolete — and costly for the states (see accompanying text). Before Amazon’s move this week, Minnesota stood to gain an estimated $400 million more each year if it could require all online retailers to collect taxes. While Amazon’s decision will shrink that gain, it’s still bound to be a tidy sum that could be used for any number of good public purposes, including reducing other taxes.
Long ago, Congress should have trumped those court decisions and allowed states to align their sales taxes with 21st-century retail practices. The so-called Marketplace Fairness Act to do just that will be on the agenda of this year’s postelection “lame duck” session in the U.S. Senate, Majority Leader Harry Reid, D-Nev., vowed last week. But resistance in the Republican-controlled U.S. House remains strong, even though the Marketplace Fairness Act is backed by many of the GOP’s business allies. Notably, Amazon supports the bill. One might think that at a time of year when politicians and their campaign donors are in regular contact, deep-pocketed friends of the Marketplace Fairness Act could have some sway.