North Dakota business groups push online sales tax bill, call it a matter of fairness
BISMARCK — Arguing it would balance the scales between brick-and-mortar stores and online retailers, North Dakota business groups promoted legislation requiring out-of-state sellers to collect and remit sales tax during a House committee hearing Wednesday, March 8.
Proponents of the legislation, which was introduced by Sen. Dwight Cook, R-Mandan, the Senate Finance and Taxation Committee chairman, argued the tax code gives online businesses a "government-sponsored advantage." It comes as some retailers struggle — Macy's announced plans to close in Grand Forks and a handful of stores have shuttered in Fargo's West Acres Mall — and more consumers shop online.
"Every day, the brick-and-mortar stores in our community are required to collect state sales tax, while many out-of-state competitors get a free pass," said Mike Rud, president of the North Dakota Retail Association. That results in an "automatic price advantage" that hampers local businesses, he said.
The House Finance and Taxation gave Senate Bill 2298 a "do pass" recommendation Wednesday. It passed the Senate with one dissenting vote last month.
The legislation was supported in written testimony by officials from Fargo, Grand Forks and Bismarck, the state's three largest cities. They pointed to lost tax revenue that could be used to support government services and infrastructure projects.
While a fiscal note attached to the bill said the additional revenue it may bring could not be computed, the National Conference of State Legislatures estimated North Dakota lost $31.3 million in uncollected sales taxes from remote sellers in fiscal year 2012, while Minnesota lost $455.2 million. Tax Commissioner Ryan Rauschenberger said North Dakota's figure has likely grown since then, given the increased popularity of online shopping.
But Rob Lindberg, representing the conservative group Americans for Prosperity, argued the bill's provisions are onerous to businesses. He also doubted the state would see a significant revenue windfall from the change, which he said would be "extremely difficult to enforce."
"Consumer choice has driven the shift to online sales," Lindberg said. "It's mostly about convenience, not price."
Wednesday's hearing came almost 25 years after the U.S. Supreme Court's decision in Quill Corp. v. North Dakota. In that case, the court said North Dakota couldn't require the mail-order catalog business to collect state sales tax because the existing system was "too complicated to impose on a business that did not have a physical presence in the state," according to the Streamlined Sales Tax Governing Board.
But software has since been developed to remove that burden and make it easier for businesses to collect and remit sales tax, Rauschenberger said.
Cook said states are losing patience with Congress to take action on the issue and are seeking to push it back to the Supreme Court. The North Dakota bill would become effective when the Supreme Court overturns the Quill decision or otherwise confirms states may impose sales and use tax on an out-of-state seller.
"I'd rather see Congress pass it, but I can't wait (and) states can't wait," Cook said.
Brad Schlossman, CEO of West Acres Development, the owner and operator of West Acres Mall, said the impact of online sales "is part of the factor that is causing some of the stores to struggle these days." Eight stores in the mall have either closed in recent months or plan to do so soon, he said.
The U.S. Census Bureau estimated total e-commerce sales last year reached $394.9 billion, up 15.1 percent from the year before.
Jeff Hinz, owner of Kirkwood Ace Hardware in Bismarck, dismissed arguments that the bill is a tax increase.
"I view it as ending a tax subsidy to an industry that no longer needs it," he wrote in prepared testimony. "Online sales are reducing Main Street sales and shifting the tax burden."