MN Lawmakers Consider Bill to Tax Online Retailers

Governor Mark Dayton says that the tax would level the playing field between Minnesota's brick-and-mortar businesses and out-of-state retailers providing the same taxable products-but a trade organization argues that such a tax would ultimately result in a net loss to the state.

The next time you buy an item from, you may have to pay taxes on it.

Minnesota Governor Mark Dayton and several Minnesota legislators have joined lawmakers in several other states by proposing to collect sales taxes from online retailers like

A bill that's now before the Minnesota Senate would require all online merchants that have local affilitates to collect state sales tax on purchases made by Minnesota residents.

A 1992 Supreme Court ruling says that retailers must only collect sales taxes in states where they have a physical presence-thus giving an advantage to online merchants., for example, now collects tax only in five states where it has offices or another physical presence.

Residents are now required to self-report online purchases in their annual tax filings and pay state taxes on them, but many aren't aware of that requirement and few actually do report purchases and pay what's owed.

But as many states, including Minnesota, grapple with budget shortfalls, they're looking at redefining “nexus,” or physical presence, and closing the loophole that's allowing those taxes to go unpaid-which the Senate bill under consideration aims to do. Dayton has said that the change would create fairness by leveling the playing field between brick-and-mortar businesses within the state and out-of-state retailers providing the same taxable products.

North Carolina and Rhode Island previously passed laws that require out-of-state retailers to pay taxes on purchases that residents make through state affiliates-and legislation was passed earlier this month in Illinois. In addition to the bill under consideration in Minnesota, lawmakers in California, Hawaii, New Mexico, and Vermont are also considering similar legislation.

According to Performance Marketing Association, Inc.-a Camarillo, California-based trade association that represents the interests of the performance marketing industry-there are currently 4,200 affiliate marketers in Minnesota. Those affiliates earned $290 million from advertising revenue in 2009 and paid $20 million in state income taxes.

Rebecca Madigan, the association's executive director, told Twin Cities Business by phone on Tuesday that the Minnesota bill under consideration would put a large and unfair burden on out-of-state retailers. “If you're putting an ad on someone's [Minnesota] Web page, that's not the same thing as having a physical presence,” she said.

Madigan added that the bill wouldn't actually achieve the goal of bringing more tax revenue to Minnesota, either. What would happen, she said, is that out-of-state retailers like would stop buying ads on Minnesota Web sites. As a result, “the Web site owners lose revenue” and “in essence, it's a net loss to the state.”