Dan Walters: Minnesota caught up in Internet tax game

dwalters@sacbee.comJuly 15, 2013 

Dan Walters

There's a nasty political squabble raging in Minnesota – at least as nasty as congenitally polite Minnesotans can muster – over taxing Internet sales. A familiar corporate name, Amazon, plays the central role.

Minnesota wants Amazon to collect sales taxes on the merchandise it peddles over the Internet. Amazon, in turn, is doing what it has done, or threatened to do, in other states that have made similar demands. It is severing its connection with Minnesota "affiliates" – mostly small purveyors of goods who use Amazon as their conduit to buyers.

That, Amazon says, removes any "nexus" to Minnesota and thus frees it from collecting sales taxes.

What's happening in Minnesota is very reminiscent of what happened in California two summers ago, when Amazon went toe-to-toe with Democratic politicians, unions and big-box stores such as Target and Wal-Mart over collecting Internet sales taxes.

Democrats had wanted to tap Internet sales for taxes for many years, with Amazon as the most visible target. But the efforts had been turned back until Democrat Jerry Brown became governor. The big-box retailers mounted a full-court political and media press, portraying Amazon as a tax scofflaw that was killing "Main Street" merchants.

An Internet sales tax bill tied to the 2011-12 state budget was passed and signed by Brown, and in response, Amazon severed connections with its California affiliates and spent several million dollars gathering 800,000-plus signatures to challenge the measure at the polls via a referendum.

At the last moment, just hours before the 2011 legislative session ended, lobbyists and legislators gathered in Senate President Pro Tem Darrell Steinberg's office to hammer out a compromise.

Amazon's collection of taxes on its California sales – estimated at $200 million a year – would be delayed. It would pledge to build three huge warehouses, dubbed "fulfillment centers," to serve California customers.

It would amount to about a billion dollars in investment and as many as 10,000 jobs.

Two years later, one warehouse in San Bernardino is operational, and hiring is under way for two others in Patterson and Tracy.

What appeared at the time to be a setback for Amazon in its high-stakes battles for sales with the big-box stores is looking more and more like a victory.

Amazon will be capable of delivering goods more quickly – as quickly as overnight – in the nation's biggest retail market with little or no increase in its overhead.

It is, moreover, very similar to the deals that Amazon obtained in other states that had tried to make it collect sales taxes. That may be a clue to what eventually happens in Minnesota, particularly if Congress doesn't pass national Internet sales tax legislation.

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