N.D. sees boost in online sales tax revenues; retailers hail level playing field
BISMARCK -- North Dakota collected $750,000 more in new online sales taxes since late June, when the Supreme Court ruled states could require online retailers to collect and remit their sales taxes, to the end of September, according to state tax commissioner’s office.
Tax Commissioner Ryan Rauschenberger said 1,600 new online companies have registered since the end of June as a result of the Supreme Court’s decision in South Dakota’s lawsuit versus online retailer Wayfair.
“That number continues to grow every day and every week. We have a lot of companies still coming in and will continue to come in as they are all able to get their systems up and running to comply with each state’s sales tax laws,” Rauschenberger said recently.
For North Dakota’s brick and mortar retailers, the news has been an attitude-changer.
Mike Rud, president of the North Dakota Retailers Association, said the online sales tax issue was a big problem for the group’s members.
“It does level the playing field and that’s all we’ve been seeking for the last 10 or 15 years that it took to get this finally in place on a national level,” Rud said Tuesday, Nov. 20. “We’re not looking for a competitive sales advantage at all. The guys in the brick and mortar (stores) just don’t want to be at a disadvantage.”
Rud said some retailers wondered if their businesses would survive.
“They’re really excited. I think it’s been a real attitude changer for the industry. I think there was a lot of gloom and doom out there and you know guys had started to take a look at 'how am I going to hang on?' They were basically being used as showrooms in a lot of cases. People would go home and order off the internet and not have to pay the tax,” he said. “Or they’d go to the store and say, ‘Look, I’ll buy it from you, but you’re going to have to eat the tax,’” he said.
Greg Danz, owner of Zandbroz Variety in downtown Fargo, is also fired up.
“It’s about time getting it done. This has been going on a long time. Obviously, I think they should have to work under the same situation that we do. …. North Dakota to their credit has done a pretty good job of it,” Danz said.
“It evens the playing field” and should help encourage people to shop at their local stores, said Melissa Rademacher, president and CEO of Fargo’s Downtown Community Partnership. She sees it as a way for consumers to reconnect with local businesspeople.
“Support local, why not?” Radermacher said. “There’s amazing people and personalities that run these businesses. What a great opportunity to get to meet them and know them and support them.”
Minnesota does not compare online sales tax figures to those collected by North Dakota, said Ryan Brown, a spokesman for the Minnesota Department of Revenue.
Brown said data collected by the Minnesota Department of Management and Budget for the July through September quarter shows a 5 percent increase in sales tax collections, compared with the same quarter in 2017.
However, Brown said that with Minnesota giving guidance to out-of-state sellers on July 25, and the effective date for collections starting Oct. 1 (the first remittances were due Tuesday, Nov. 20), that “we would expect a very nominal amount” would be due to the court case for the July to September time period.”Leveling the field
North Dakota also set an Oct. 1 deadline for online retailers to comply with the tax law and start collecting and remitting state and local taxes.
Rauschenberger said Friday, Nov. 16, that companies that failed to meet that deadline will be handled on a case-by-case basis.
Firms owing back taxes to Oct. 1 will be required to pay 1 percent per month interest on the amount owed, or 12 percent annually. And there can also be penalties, he said.
The Oct. 1 deadline was set to make sure that the playing field was leveled between the state’s retailers and online stores, going into the holiday shopping season, Rauschenberger said.
The tax department is contacting firms among the top 1,000 online retailers that aren’t registered in order to help get them into compliance.
There is some pushback, though. North Dakota has a small-seller exception to collecting the sales taxes: If an online retailer has less than $100,000 in sales or 200 sales in a given year, they are not required to collect North Dakota sales taxes.
Some firms are trying to prove that they don’t cross that sales threshold, “which is a little more work intensive,” Rauschenberger said.
Significant online state and local sales taxes have long been collected from firms such as Walmart, Target, Best Buy and Amazon that had physical presences in the state.
“The Supreme Court’s decision finally brings sales tax collection into the internet age and reinforces the basic American notions of fairness and a level playing field for all who choose to compete in the marketplace,” said Matt Smith, a Best Buy spokesman.Good for all
North Dakota collected $900 million in sales taxes for the fiscal year that ended June 30, 2018, Rauschenberger said.
For the 2019-21 biennium, collections are expected to be about $1.9 billion, he said.
Budget forecasters expect additional online sales tax collections will account for $10 million in the first year of the next biennium and $15 million in the second, Rauschenberger said.
The state will have more data in February about the number of online retailers registered, how the holiday shopping season went and how much online sales tax was captured, so the budget forecast can be sharpened.
“Statistically, we’ve said it could be anywhere from $20 million to $50 million that we’re not realizing in a year,” Rauschenberger said.
Rud said the extra dollars are good for everyone in North Dakota.
“If we want to keep our emergency services and our schools and our streets up to speed, every dime counts in this day and age. So this is going to be a big plus, I think, long term,” Rud said.
“The guys in the brick and mortar who pay the taxes and employ the people in these communities and support all the local teams and events and that kind of thing, they were taking a beating. And now I think we’re back to a pretty even playing field, and that’s all we were asking for,” Rud said.