ST.

Friday, March 01, 2002

ST. PAUL – Rep. Dan Dorman sees some companies taking advantage of Minnesota’s tax laws through the Internet, and he’s hoping to put a stop to it.

Dorman, R-Albert Lea, has introduced a bill that would apply the state’s sales tax to more purchases that now slip through the state’s net.

An example: Customers can go into Cabela’s in Owatonna, make purchases through the company’s Web site and even return or exchange merchandise in the store, yet no state sales tax is paid on the purchases. Other companies have similar practices.

Because companies sometimes structure their Web sites as separate affiliates, those Web sites aren’t subject to state sales tax because they have no physical presence in Minnesota – even though the parent company, like Cabela’s, does, Dorman said.

The law says the companies are required to pay state sales taxes if they have a substantial presence in the state. Dorman argues that having affiliated stores in the state, as well as allowing returns and exchanges in the state, signify a substantial presence.

&uot;If you had to pick one issue that is the issue for taxation nationally and in the state, this is the one,&uot; said Jenny Engh of the Minnesota Department of Revenue.

According to estimates, collecting tax on the purchases Dorman is targeting would bring in around $40 million per year, but the number is expected to grow as more companies increase their Internet sales and become more savvy about using their Web sites.

Dorman said in a time of budget problems, collecting more taxes with measures like his is better than raising tax rates.

&uot;I think before we go down that road, we should look at compliance issues like this,&uot; he said.

A house sales tax committee heard Dorman’s bill Wednesday and agreed to consider it for inclusion in the omnibus tax bill.