Editorial: Make online sellers collect sales tax

Star Tribune Editorial

Buy anything online lately? An increasing share of Minnesotans have.

Pay sales tax on that purchase? State law requires that you do, even if the online retailer didn't add Minnesota's 6.875 percent tax to your bill.

If you're an ordinary consumer, paying that uncollected sales tax means voluntarily ponying up, at least annually, in some cases quarterly.

But the temptation to "forget" to report and pay taxes on such purchases is high -- especially since it's widely known that the state government lacks the auditing capacity to catch small-time sales tax cheaters.

Failing to report untaxed online purchases may seem like a trivial fudge to otherwise honest taxpayers. But it adds up to big losses for Minnesota and states like it around the country.

And the perceived ability to shop tax-free online is creating an increasingly costly competitive disadvantage for Minnesota-based retailers -- the ones who provide local jobs, pay state and local taxes, contribute to local civic life and deserve a fair shake under state laws.

In Minnesota, the state Retail Federation has won Gov. Mark Dayton's backing for legislation to require online-only businesses (the big ones are Amazon.com and Overstock.com) to collect sales taxes from Minnesotans at the time of purchase.

The retailers deserve the Legislature's backing as well.

The proposed measure must skirt a 1992 U.S. Supreme Court ruling that until now has stood in the way of states' ability to fairly tax online purchases. That ruling requires that a retailer have a physical presence in a state before the state can compel it to collect sales tax.

The wave of bills that have surfaced this year around the country redefine physical presence to include in-state affiliates that promote an online retailer's websites and products.

That definition snags Amazon and Overstock, but likely won't catch all online retailers. For that to happen, Congress needs to act. The retailers are working on that, too.

And not when state government can deliver some relief this year to retailers like Mike Drury. His Drury's Furniture has been operating in Fountain, Minn., since his grandfather founded it in 1925.

Last year, he said, he lost between $50,000 and $100,000 in sales to customers who seemed poised to buy merchandise at his store, then later told his sales staff that they bought the item online instead to avoid paying sales taxes.

For his 25-employee business, that's serious money.

"This is like an everyday pothole that you step in when you get to work," Drury said.

That pothole on Minnesota's Main Streets is only going to get bigger, unless the Legislature and/or Congress acts.

In recent weeks, two Midwestern states, Illinois and South Dakota, joined five others that have already narrowed the online sales tax loophole; 16 other states are considering the move.

Minnesota ought to do the same this year.