Ask Roberta Bonoff, CEO and president of Creative Kidstuff, a specialty toy store based in Minnesota, how her company has stayed in business for 30 years and she’ll tell you, “First and foremost, it’s about offering your customers and your community an experience and service they won’t find anywhere else. Second, it’s about staying relevant and staying competitive.” One way to remain competitive is to level the playing field among offline and online businesses. That’s why Bonoff, and numerous other Minnesota business groups, are working with the Minnesota Legislature on a proposal to require large online only retailers to collect sales tax at the time of purchase, something brick-and-mortar retailers are already required to do. Along with local shops, the state has much to gain. Minnesota retail businesses employ more than 17 percent of Minnesota’s employed, and it is estimated that the state loses more than $400 million from remote retail sales (House Research Department).
Currently, Minnesota imposes a sales tax that brick-and-mortar retailers collect at the time of purchase and remit to the state. This tax also applies to Minnesota’s E-commerce sites. “Unfortunately, some online only retailers are exploiting a loophole that allows them to avoid collecting Minnesota sales tax on these same purchases,” Bonoff points out. “Technically, online shoppers are required to report and pay online sales taxes owed on yearly taxes, but most people don’t know that. This gives online sellers a competitive advantage by not collecting the tax and creating the perception that online only purchases are tax free.”
For several months, Minnesota businesspersons have testified to the senate tax committee, held press conferences, sent numerous letters and had meetings with state senators, all in an effort to gain political support. Bonoff herself testified at the recent hearing at the State Capital in January. The latest version of their proposal is to be voted on during the session that started on March 4.
“Creative Kidstuff has enacted customer incentive programs and various toy and brand promotions to help lighten the burden and make purchases more accessible,” Bonoff adds. “Unfortunately, it’s not always enough. If a parent is able to save a few dollars on every toy purchase by avoiding taxes, they’re going to do it. We know that people are coming to our stores, finding products they love, and then going home to purchase them online at a discounted rate. That comes from the 5 to 10 percent that online retailers don’t have to pay in taxes. We’re ready to compete with anyone that is out there, we just want a level playing field,” says Bonoff.
It’s not a political issue it’s a business issue, Bonoff continues. Passing an E-fairness bill on a federal level would not only support small businesses, but local manufacturers and community organizations as well. Ultimately, if this proposal goes through on a federal level, the positive effects will filter into local communities via added revenue for retailers and the state.
A Fair and Simple Way to Level the Playing Field for Online Sales. — Apply this immediately to Amazon, Wal-Mart and all online sellers whose gross sales exceed one million dollars a year.
Fine tune the process and then start reducing the annual sales level until EVERYONE who sells anything on the Internet is paying.
1. Eliminate all online sales and use taxes.
2. Impose a Processing Fee (PFE) on every sale made – no exceptions. (This is a fee not a tax.)
3. Every time an online sale is made by Amazon (Wal-Mart, Target, etc.,) a % of that sale is transferred into a holding account. Once the processing fee is deposited in the holding account, it cannot be reversed. PFE is based on the total amount of the sale including processing fees, handling fees, etc.
No matter what Amazon calls it, PFE is charged for the total amount of money the customer pays for his or her purchase.
4. At midnight, the holding account is transferred to a Federal computer.
5. The Federal computer takes the money received and immediately transfers it, less an agreed upon processing fee that pays for the computer, to individual state computers based on a distribution formula agreed to by the individual states.
6. Once this works properly for Amazon, the one million in sales cutoff should be dropped to 500,000 and then to progressively lower amounts. Within a few years EVERYONE selling on the Internet will pay their fair share in processing fees. Since the PFE goes to a Federal computer, anyone trying to beat the system should be charged with a Federal crime and vigorously prosecuted.
If elected officials don’t spend the money faster than it is collected, the % should be lowered as more and more businesses begin paying PFE. (Every business selling on the Internet, NO EXCEPTIONS, will pay a PFE.) If you object to paying PFE, for any reason, don’t sell or purchase via the Internet.
Cost of collecting and processing PFEs should be minimal for both government and private businesses. You won’t need lawyers and accountants to figure out how to beat the system. You sell anything on the Internet and you pay PFE. You try to beat the system and you deal with the IRS or another Federal agency.
Companies who work with affiliates (Amazon) and companies like PayPal who offer shopping carts, would collect a PFE for every transaction. This would eliminate everyone using these systems from the burden of collecting and disbursing PFEs for those sales. (And collect revenue from small sellers who have avoided collecting and reporting sales taxes on their sales.)
Individual states would have a daily stream of incoming revenue. The Federal computer and its SMALL staff would be paid for by an agreed upon processing fee. Amazon and other big corporations would pay their fair share and be prevented from playing games with their books to avoid paying PFE. Each business would decide whether to pass the PFE on to its customers or absorb the fee internally.
Customers refusing to purchase via the Internet would be subject to brick and mortar sales tax rules and fees. Everyone selling anything on the Internet would pay PFE. (Whether or not PFEs would be a business deduction would up to individual states and the Federal government.)
Everyone selling on the Internet should be subject to the same rules and fees; but, they have to be understandable, simple to administer and affordable for all businesses.
This system is simple, easy to implement with our modern technology, and can operate independently of the current complicated sales tax systems that small and big business have to deal with on a daily basis.
Small businesses are not asking for favors, we just want a fighting chance, a reasonably level playing field, and a collection process that doesn’t cost more than we can afford.
Ron Nixon
Owner RWR Innovations LLC