With high-profile items such as a new fourth-tier income tax rate grabbing the attention, some other tax changes in Gov. Mark Dayton’s budget proposal may fly under the radar.
For instance, if you purchase items from Amazon.com or make your vacation reservations online you could be paying a sales tax. Do you use a DVR service from your satellite TV provider? There could be a new sales tax on that, too. But if you like to change your cell phone’s ringtone often, there’s good news: the sales tax that you currently pay would go away.
If you add up the additions these new taxes would make to the state’s bottom line, they are a drop in the proposed $37 billion budget bucket. But the governor views the changes as a way to “create fairness by leveling the playing field between brick-and-mortar businesses,” and to conform the law to changing technology.
Approximately $10.6 million in sales taxes could be collected through changes to something known as the affiliate nexus definition — people generally paid by an Internet seller based on the number of people who “click through” their site to get to the seller’s website. This relates to e-commerce and could mean anything from making online purchases from out-of-state businesses to providing discount coupons on your website.
That’s how this provision would affect Carrie Rocha of Maple Grove, who operates pocketyourdollars.com.
She told the House Taxes Committee
Feb. 23 how her blog’s popularity “exploded,” and it has become her family’s sole financial support. Approximately 45 percent of her income is from affiliate revenue, she said.
Connie Berg created her own web business, FlamingoWorld.com, which employs several family members. “I am not a seller; I advertise for companies. I’m no different than a magazine that has ads in it,” she said. She thinks the change would put her out of business. “If the nexus tax is passed, there is not going to be any increase in revenue to the state,” she said, because the host companies, not wanting to be responsible for sales tax collection, would drop their Minnesota affiliates.
Dayton’s other proposed changes
If you buy software at a retail outlet, you pay sales tax, but if you access the software online (often called cloud computing), you don’t. That would change. Dayton’s proposal would “provide clarification and consistency and promote ease of administration.” Plus, it would bring in about $3.4 million over the 2012-2013 biennium for the state coffer.
Those who receive their TV service through a cable provider pay a sales tax on all services including pay-per-view and other services such as DVR, but not all of the same services are taxable when sold by a direct satellite service provider. Dayton would have all treated fairly. The change would increase General Fund revenue by $2.3 million over the 2012-2013 biennium.
Matt Massman, assistant revenue commissioner for tax policy, said there are approximately 227,000 satellite subscribers in the state with DVRs who would be affected by the new tax.
Under current law, admission charges to such things as athletic events, concerts, theaters, dances, the state fair, skating rinks and swimming pools are taxable. Dayton proposes to tax admissions to home and garden, boat, auto and similar consumer shows and the rental of box seats and suites at stadiums. If this change becomes law, projections show an increase of $6.9 million to the biennial bottom line for 2012-2013.
Those accustomed to making lodging reservations online could see some changes to their bill, and the state would see an approximate $8.6 million addition to the General Fund.
According to the Department of Revenue, consumers pay less tax if they reserve a hotel room through an intermediary, such as a travel agent, compared to the amount of tax that would be paid if the consumer made the reservation directly with the hotel, even though in both situations the price of the room is the same.
Dayton would remove some items from the sales tax list — those cell phone ringtones being one.
Minnesota partners in the Streamlined Sales and Use Tax Agreement, a voluntary effort by a number of states to “simplify and modernize the sales and use tax administration in states in order to substantially reduce the burden of sales tax administration for all sellers and all types of commerce.”
But the state is out of compliance when it comes to ringtones. Under current state law, ringtones are a taxable service, but other digital audio downloads are not. At a cost of about $410,000 to the state over the next biennium, ringtones will no longer be charged a sales tax to bring the state in compliance.
In 1986, Minnesota adopted a bottle tax equal to $0.01 per container to help offset the cost of administering a liquor stamping requirement. That requirement, used as a means to regulate liquors, has been repealed, but the bottle tax continued. According to the Department of Revenue, eliminating the bottle tax would allow for more efficiency in the administration of liquor taxes. To make up the lost revenue, the excise tax on wine and distilled spirits would be increased by $0.01 per liter. Beer would not be affected.
Massman said the governor’s tax proposals are being drafted into bills, and could come before the committee for action within two weeks.
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