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Internet: The Tax Target
By Laura McCallum, Minnesota Public Radio
March 7, 2001
Part of MPR's online coverage of Session 2001
Click for audio RealAudio

Gov. Jesse Ventura has announced an effort to simplify the state's sales tax system. The move represents a first step toward taxing Internet sales. Ventura says it's not fair to impose sales taxes on Main Street businesses, but not e-commerce.

Gov. Ventura says governors across the country agree that Internet e-commerce should be taxed, because states are losing money.
TECHNICALLY, INTERNET SALES ARE TAXED if you spend more than $770 a year online. But for all practical purposes, they're not, because hardly anyone reports their e-purchases, and the state has no way to track the sales. Online retailers say it would be a logistical nightmare for them to collect the tax, because the sales tax varies widely from state to state.

Minnesota Revenue Commissioner Matt Smith says a project called the Streamlined Sales Tax Effort aims to change that, by having states agree on common terms. "We need to get our act together, in the sense of having uniform definitions about products, so a Twix candy bar is defined as either food or candy consistently in every state in which those are sold, rather than it's candy in one place, it's food in another," according to Smith.

Legislation introduced would also move toward one sales-tax rate per state. Gov. Ventura says Minnesota is at the forefront of the issue, and is one of more than 40 states that have been meeting to come up with a computer system to collect tax on items sold over the Internet.

Ventura says governors across the country agree on the issue, because states are losing money. "It has to be addressed uniformly across the country. I think it was last year alone, Tennessee indicated they had lost, I believe, $180 million in revenue over Internet sales."


Ventura says while he supports collecting tax on Internet sales, he opposes taxing Internet use. The bill introduced this week has bipartisan support, and is backed by companies such as Target Corporation, which sell both in stores and on the Web. But e-commerce groups have resisted efforts to tax online purchases, and the legislation is vigorously opposed by fiscal conservatives such as the Taxpayers League.


Internet Taxation (pdf) House Research Department.

Advisory Commission on Electronic Commerce

The Great Internet Tax Drain

The League's legislative director, David Strom, says taxing e-commerce would end up backfiring. "You shouldn't be going around trying to strangle an emerging growth industry, which is precisely what they're talking about doing," he says. "Already, we see that a lot of these businesses have not gotten their footing yet, and we're going to be driving these businesses either out of Minnesota or even out of business altogether."

Supporters of taxing Internet sales argue it simply creates a level playing field between brick-and-mortar businesses and e-commerce. Many observers thought the states would never be able to come together on the issue, but the streamlined sales tax effort is gaining momentum around the country, according to Neil Austin, who studies the issue for the National Conference on State Legislatures.

The legislation is working its way through the Capitols of 20 states, but Austin says it has yet to pick up support in the two biggest states: New York and California.

Austin believes New York and California will come on board, if they see other states collecting revenue from online sales. A recent study found Minnesota stands to lose $200 million in 2003 from e-commerce purchases.