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Greg Danz, owner of the Zandbroz Variety store in Fargo, says passage of a federal law that would require online retailers to collect sales taxes is long overdue. Dave Olson/The Forum

Online sales tax bill gains momentum

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FARGO -- The U.S. Senate is poised for a final vote Monday on a bill that would give states the authority to force online retailers to collect sales taxes on goods shipped to places like North Dakota and Minnesota.

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The House will eventually vote on the bill, too, and unlike past attempts there is growing consensus a law will be enacted this time around.

“It’s about damn time,” said Greg Danz, owner of Zandbroz Variety store in downtown Fargo.

Danz said the fact that many online retailers don’t collect sales taxes has been a concern of independent bookstores like his for a long time.

“That’s probably our biggest form of competition these days – the Amazons of the world – and they’ve gotten away without (collecting) it,” Danz said.

The issue is particularly vexing for stores in cities such as Fargo, where the sales tax is a significant cost, he said.

“We’re charging people 7½ percent, and that can be a big factor in how people buy books,” Danz said.

Although a sales tax is legally required on online purchases, sellers are not required to collect it and buyers usually do not take it upon themselves to report and remit any tax that is due.

For North Dakota, the amount of revenue lost may be as much as $7.5 million to $10.2 million a year, according to the North Dakota Tax Department.

The situation puts Main Street retailers at a disadvantage compared to retailers who sell over the Internet or by some other remote means, said Cory Fong, North Dakota tax commissioner.

Fong said the state has more than 126 cities and several counties that have a sales tax. Those entities, as well as the state, rely on the revenue “to provide services to our residents and to build and maintain a high-quality infrastructure for the businesses operating here,” he said.

Powerful backing

U.S. Sens. John Hoeven and Heidi Heitkamp of North Dakota support the Marketplace Fairness Act, as do Minnesota Sens. Amy Klobuchar and Al Franken.

Hoeven, the sole Republican among the four, once opposed similar measures out of worries they would create new taxes or regulatory burdens on businesses. The latest proposal will do neither, said Don Canton, a Hoeven spokesman.

Likewise, several large companies that once opposed the idea of Internet sellers being required to collect sales taxes – including online seller Amazon.com – favor the latest measure.

One main reason is that online sellers with a physical presence in states they do business in are already required to collect sales taxes, including companies such as Amazon and Wal-Mart, which have stores and warehouses in North Dakota.

That growing business support has created bipartisan backing for the Marketplace Fairness Act in Congress, said Heitkamp, an original co-sponsor of the bill.

The bill also has the support of many state officials. Heitkamp recently commended North Dakota Gov. Jack Dalrymple for backing the proposal.

“The governor understands that it is unfair to let out-of-state businesses have this tax loophole,” Heitkamp said.

When Heitkamp was North Dakota tax commissioner in the early 1990s, the state attempted to force catalog retailers to collect the tax state and local governments were owed on sales.

The issue ended up at the Supreme Court, which ruled that Congress had the ultimate power to resolve the issue.

Klobuchar said small Minnesota businesses from Red Wing to Eveleth need a level playing field to compete against online retailers.

“Unfortunately, too many Minnesota businesses are put at a disadvantage because of a loophole in our tax code,” she said.

Franken said Minnesota’s retail industry represents about one in five jobs and those retailers need to compete on price every single day.

“The current sales tax system makes it impossible for them to compete,” he said.

Divided opinion

But not everyone favors the bill.

The Greater North Dakota Chamber of Commerce has taken no official stance on the legislation because some members support it while others are opposed, said Andy Peterson, president and CEO of the chamber.

He said Swanson Health Products of Fargo is strongly opposed to the proposed law.

“They told me how much they hated this thing,” Peterson said, referring to Swanson officials who told him the vast majority of Swanson customers live near the ocean in states like Washington, California, Texas and Florida and other states along the East Coast.

“The lack of sales tax on the Internet allows them (Swanson Health Products) to absorb the shipping cost,” Peterson said.

Messages left for Swanson Health Products for comment were not returned.

While the Greater North Dakota Chamber takes no stand on the Marketplace legislation, it does have some concerns about the proposed law, Peterson said.

“If the government starts collecting a larger tax, what are they going to do with it?” he asked “Are they going to simply carry on business as usual, or are they going to try to get leaner?

“The other concern we have is the simplicity,” Peterson said.

“Just take a look at our income tax from the federal perspective; it is just a gargantuan mess,” he said. “Something intended to be simple becomes convoluted very quickly.”

Like the state chamber group, the Fargo Moorhead West Fargo Chamber of Commerce is neutral on the proposed federal law, explaining its stand in a written statement:

“The Chamber does not have an official position on internet taxes but is carefully monitoring proposals.

“Local brick and mortar businesses can certainly be disadvantaged by online retailers who avoid the sales tax, however, The Chamber uses extreme caution when proposals for new taxes are brought forward for businesses of any kind,” the statement said.

‘Goofy world’

Danz said he is cautiously optimistic Congress will approve the bill, though he cautioned that earlier failed attempts also looked promising.

“Until it gets all the way through, I’m not counting any chickens,” said Danz, whose customers sometimes check out his merchandise without intending to buy.

“We’ve stopped letting people take pictures of things like jewelry and stuff because they want to go home and put it in their computer and see if they can find it (online),” Danz said.

“It’s a goofy world out there right now,” he said.

Glenda Haugen, owner of My Best Friend’s Closet, a resale consignment shop in Moorhead, straddles the fence regarding online sales tax collection.

In addition to her Moorhead shop, Haugen operates an eBay store, which like her bricks-and-mortar business sells clothing and jewelry.

While the Marketplace Fairness Act applies only to businesses that do $1 million of business or more a year, Haugen said she is worried the threshold could be lowered someday and businesses like hers would be required to collect sales taxes.

Although there is currently no sales tax on clothing in Minnesota, there is a tax of less than 1 percent on jewelry. Haugen said collecting that tax and passing it on to the state would create headaches for her business.

“That is pencil time, you have to go case by case,” Haugen said.

Article written by Dave Olson of the Forum News Service

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