Legislators and business leaders say inability to tax hurts hometown retailers.
A group of GOP and DFL lawmakers joined business leaders Thursday to push for Minnesota to join a growing number of states that require Internet retailers to collect state taxes.
With the legislative session in its final weeks, supporters are racing to get the proposal included in the final, comprehensive agreement before adjournment.
"Even good ideas get lost in the train wreck in the end of session," said Sen. Geoff Michel, an Edina Republican who chairs the Senate jobs committee and who is a leading proponent of the tax change.
Under the plan, endorsed by Gov. Mark Dayton, Internet retailing behemoths like Amazon would have to collect state taxes when Minnesota customers buy goods. Minnesotans are supposed to pay state tax on their own when they buy online, but only a tiny fraction do -- just 789 in 2010, according to state officials.
That deprives the state of millions of dollars in uncollected taxes and puts local retailers at a significant disadvantage. As Internet buying has exploded, retailers complain that customers are using their stores as little more than showrooms.
At Creative Kidstuff, a boutique toy store on St. Paul's Grand Avenue, Roberta Bonoff watches in frustration when she sees customers find something they like, then go home to buy it tax-free from an Internet retailer.
"We'll do a lovely job taking care of them, and then they will go buy it on Amazon," Bonoff said. "If we can just level that playing field and make it equal for all of us, no matter where you are buying your product, that would be fabulous."
Dayton wants to see the proposal approved this year, using the additional revenue for job-creation initiatives. Hometown retailers like Target and Best Buy are clamoring for the change.
Now, the Republicans who control the House and Senate must weigh helping Minnesota companies against their longstanding refusal to raise taxes. With Internet sales topping $165 billion a year nationally and local retailers struggling to recover from the recession, legislators are being pressed to take a stand.
Minnesota revenue officials estimate the state loses $149 million a year in taxes through e-commerce from out-of-state retailers. Adopting the proposed change would recoup just a fraction of that -- about $3.7 million next year and an additional $5 million each year after that. More than a dozen other states already require collection of Internet sales taxes or are considering doing so.
State Rep. Pat Garofalo, R-Farmington, said current law subsidizes businesses with no buildings in the state, few, if any, local employees and no connection to the community.
"There's a word for this: It's 'stupid,'" said Garofalo, chairman of the House Education Finance Committee. "It makes absolutely no sense that we have this in our tax code."
But a powerful faction of Republicans opposes the change, at least for now. They'd rather wait for Congress to enact a uniform, national solution. Others, like Rep. Steve Drazkowski, R-Mazeppa, see the measure as a clear-cut tax increase that will just lead to more government spending.
So far, that opposition has stranded the measure in committee. Senate Majority Leader David Senjem, R-Rochester, has not talked openly about the proposal, but Senate Taxes Committee Chairwoman Sen. Julianne Ortman, R-Chanhassen, said recently she was not supportive of the change this year.
Business leaders met with House Speaker Kurt Zellers, R-Maple Grove, earlier this week and urged him to support the change.
Zellers said Thursday he views it as a tax compliance issue and would support it only if the additional revenue went for tax relief. He said he does not consider the measure a must-have for the session.
Mike Drury, owner of Drury Furniture in Fountain, said customers often come into his showroom and try to use tax-free Internet prices to get him to lower his price. Explaining to customers that they are supposed to pay tax on Internet sales doesn't help.
"That's the unfairness of the playing field," he said. "I just see no reason why this online fairness issue can't be resolved this session."
Critics note that often the products are far cheaper online, taxes aside, and predict giant retailers will quickly find a way around a new law.
Rep. Keith Downey compared the complexity of the situation to killing a swarm of ants with a hammer.
"Retailers are going to find 1 million and one ways around this," Downey, R-Edina, said at a recent hearing.
If Minnesota tries, Downey said, "I think we will look back and think we made a really big mistake."
Baird Helgeson • 651-925-5044