States miss out on millions of e-commerce sales tax dollars

Megan Boldt

E-commerce giants like eBay and are making millions of dollars each year from online transactions — tax-free transactions.
Currently, there is a moratorium on Internet sales tax that would last until 2001. The moratorium prevents some states, including Minnesota, from taxing transactions made on the Internet.
Minnesota and other states stand to lose millions of dollars in the next several years if the current ban on Internet taxation continues.
While the amount of money the state is losing in sales tax is not monumental yet, it is expected to be in the future.
“At this point it is not estimated exactly how much the state is losing,” said Judy Niccum, key resource for sales tax in the Minnesota Department of Revenue. “It will be a big chunk in the future.”
According to a study done by the Multistate Tax Commission, if the moratorium continues, the state of Minnesota will lose $219 million in state and local taxes.
“If that mode of business expands, the state could lose billions in the future,” said U.S. Rep. Martin Sabo, D-Minn.
The ban’s purpose is to conduct a study on the impact of online retail and what affect it will have on sales tax, said Steve Behm, spokesman for U.S. Sen. Rod Grams, R-Minn.
Grams currently supports the ban, but has publicly stated he will reconsider when the research is finished. The U.S. government is in the process of gathering information on e-commerce’s trends and its effects on sales tax.
Rep. Bill Luther, D-Minn., said he supports extending the moratorium so the Internet can continue to advance and grow.
“The full impact of a tax-free Internet has yet to be fully analyzed by a neutral, independent source, and that’s why I don’t think we should alter the moratorium until we understand the true impact of e-commerce,” Luther said in a statement released Tuesday.
Behm said it is unclear whether Internet business will be taxed next year when the moratorium expires.
“That is a factual question that we are still waiting to figure out,” Behm said.
Sabo disagrees with the ban, saying online sales should be subject to a normal retail sales tax like any other business.
“It is unfair the people selling goods in the traditional way are getting taxed while others are not,” Sabo said, adding the moratorium is an obvious advantage for online retailers.
The future taxation of the Internet remains in limbo, Niccum said.
The complexity of some states’ sales tax policies have caused debate among legislators and state officials. Some say the process of taxing is too complex and a new system needs to be examined.
Niccum said Minnesota is working with other states to look for a system that is less complicated.
Questions linger regarding what items are taxable or not. He said the state is examining options that would eliminate discrepancies between taxable goods and the burden on out-of-state retailers.
“There is a national effort to look at ways to simplify and streamline taxes,” Niccum said.
According to a survey by the Carlson School of Management released last month, Minnesotans spent about $243 million online in 1999.
Of those surveyed, 29 percent of those who have purchased online do so at least once a month.

Megan Boldt welcomes comments at [email protected] She can also be reached at (612) 627-4070 x3212.