Senate Committee Considers Online Sales Tax Bill

The broadly supported bill aims to help Main Street businesses by requiring certain online retailers to collect the Minnesota sales tax.
(Published Jan 22, 2013)

The Senate Tax Reform Division on Jan. 16 heard SF 8, a bill authored by Sen. Ann Rest (DFL-New Hope) that would require retailers that do not have a physical presence in Minnesota to collect the Minnesota sales tax if they have an affiliate relationship with a Minnesota-based business or individual.

Affiliate status is triggered when the business or individual, for a commission or other consideration, directly or indirectly refers potential customers by a website link or another way to the seller not based in Minnesota.

The legislation is in response to the rapid growth in electronic commerce that has heightened concerns among states about erosion in sales tax revenues as well as raised concerns about tax fairness between Main Street businesses and Internet retailers. The issue originated in the wake of a 1992 U.S. Supreme Court decision, Quill v. North Dakota, which essentially prohibited states from compelling retailers that do not have a physical presence in the state from collecting state and local sales taxes.

Congress has been considering legislation that would essentially allow states to require out-of-state retailers to collect sales taxes as long as certain administrative simplification criteria are met. Unfortunately, Congress has yet to pass bills such as the Marketplace Fairness Act and as a result, states are looking for their own solutions, including the affiliate nexus concept.

The affiliate nexus legislation was discussed last year and several other states have adopted similar laws to compel out-of-state vendors to collect the sales tax. During last year’s hearings, the bill was opposed by some Minnesota affiliates that feared that large online vendors might sever their business relationships to avoid collecting Minnesota sales tax.

This year, the bill hearing drew no opposition testimony. Some speculate that the move by some large retailers to employ new strategies that involve a broader array of distribution facilities, and therefore points of nexus in more states, has resulted in a moderation of opposition to affiliate nexus legislation.

The bill was supported by several individual retailers as well as the Minnesota Retail Merchants Association, the Minnesota Chamber of Commerce, the Minnesota Business Partnership, the League of Minnesota Cities, and the Association of Minnesota Counties.

The bill was laid over for possible inclusion in a division report to the full Taxes Committee.

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