The other day I heard a news story on MPR (Minnesota Public Radio www.mpr.org) about Internet taxes. Currently, the MN state sales tax is 7%. This tax is on items such as electronics and luxury items. Use tax does not apply to items currently tax exempt in Minnesota, such as clothing, prescription drugs for humans and most groceries.
Most of the United States uses an Internet tax entitled, “Use Tax.” According to Minnesota’s tax laws, the definition of the use tax goes something like this. Use tax is the counterpart of sales tax. You owe use tax when Minnesota sales tax is not charged on taxable items you buy, whether you buy them in Minnesota or outside the state.
For example, if you travel to another state or country and bring back items that are normally taxed in Minnesota, you owe use tax on those purchases. The same applies if you buy taxable items through mail-order catalogs or the Internet and Minnesota sales tax is not charged on the purchase. For a complete run down on how Minnesota defines this tax, click here. MN Definition of Use Tax
The “Use tax” is an excise tax. An excise tax is a tax on use or consumption of certain products. Excise taxes are sometimes included in the price of a product, such as motor fuels, cigarettes, and alcohol. Excise taxes may also be imposed on some activities, like gambling. Excise taxes may be imposed by the federal government or by a state. For more information on excise taxes, you can read more at the IRS website. I.R.S.
The law most people get confused is the interstate commerce rule. The theory goes that since Amazon.com is based in California and I live in Minnesota, Amazon can’t charge me sales tax because that would violate the constitution’s interstate commerce clause, namely that the federal government holds jurisdiction over commerce that crosses state lines. Thus, they say, charging sales tax on out-of-state Internet purchases is illegal. This is incorrect.
The clause merely means that out-of-state retailers can’t be required to collect sales tax on out-of-state purchases. In this case, Amazon isn’t responsible for charging and collecting sales tax for my state (Minnesota) because it is based in California. However, this says nothing of my obligation to pay sales tax to the state myself. Indeed, by Minnesota law I am technically required to file a return with the state every year and pay sales tax on out-of-state purchases I haven’t already paid sales tax on. Most states have similar laws, meaning you are required by law to report and pay sales tax on all Internet purchases.
Currently, this Use Tax is being debated on in the Minnesota Senate. The state says they are losing millions of tax revenue because this tax isn’t being enforced. In my opinion, this tax is something that shouldn’t be enforced because in our state of economy, our record high unemployment numbers, this is another tax us Americans cannot afford. Most people are doing more online shopping these days and this is the way our economy is turning. I say the government should roll with the changes and find other ways to collect tax revenue. I don’t feel people are going to keep track of their online purchases over the year and when tax time rolls around, nobody is going to be bothered to add yet another tedious part of the grueling process to file their taxes.
Give it up GOP. This use tax isn’t going to happen. Deal with it.
