Online Marketplace Tax Bill Vetoed in Minnesota

Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...

By Michael J. Bologna

Minnesota lawmakers agreed to convene a new round of negotiations aimed at cutting taxes and funding state government after Gov. Mark Dayton (DFL) May 15 vetoed every component of the two-year revenue and spending plan passed by the Republican-controlled Legislature.

Dayton vetoed House File 4, an omnibus revenue bill that would have provided $1.15 billion in tax relief to Minnesota taxpayers. The bill also included marketplace provider provisions, requiring marketplace providers to collect and remit taxes for facilitated sales. Dayton’s action came after he also vetoed five finance bills, funding most departments of state government.

Practitioners have predicted that states’ legislative efforts will increasingly target marketplace providers like Amazon.com Inc., Overstock.com, Inc., eBay Inc. and Etsy Inc., imposing collection obligations on companies offering online platforms on which third-party retailers can peddle their wares.

However, prior efforts this year failed in New York, and practitioners have questioned whether a Washington bill and other state bills have legs, including those in Rhode Island and Texas (where a bill has advanced to the Senate).

‘Roll Up Our Sleeves’

Dayton previously warned Republican lawmakers he would veto all of their tax and spending proposals. The governor said he intended to force a more cooperative round of negotiations aimed at completing the 2018-19 biennial budget before lawmakers adjourn May 22.

“I will veto every one of those bills, which will leave us with the same differences several days from now that we face today,” Dayton said in a statement May 9. “Their actions will make it much more difficult for them to fulfill their Constitutional responsibility to send me budget bills, which I can sign, by May 22nd. I urge the Republican Legislative Leaders to send me their bills very quickly and then return to our negotiations.”

Senate Majority Leader Paul Gazelka (R) acknowledged Dayton would likely veto H.F. 4 after his members passed the measure May 15 by a vote of 34-32. The House passed the tax bill May 10 by a vote of 76-57.

“We are going to roll up our sleeves starting tomorrow morning at 9:30,” Gazelka said from the Senate floor. “We are going to meet with the governor and the House and we will do our part to find a prosperous end for Minnesota.”

H.F. 4 was the product of a conference committee effort to reconcile tax cutting proposals passed by the House and Senate in recent weeks. Republicans in both chambers stressed the need for cuts in response to a budget surplus of $1.65 billion.

The Senate proposed cuts of $900 million over two years, but the House measure called for cuts of $1.35 billion. Dayton’s own $45.8 billion budget proposal, released in January, envisioned tax cuts of $300 million.

Internet Sales

While H.F. 4 focused heavily on cutting taxes, the bill also contained provisions designed to collect additional revenue.

The marketplace provider provision would have expanded the definition of a “retailer maintaining a place of business in the state” to include retailers with third-party affiliates operating in the state under the retailer’s authority to facilitate or process sales. For those retailers with in-state taxable retail sales less than $10,000 annually, the bill created an exemption if they maintain a place of business solely though sales on marketplace platforms.

Marketplace providers” would have been defined as persons who facilitate a retail sale by a retailer—listing or advertising for sale any tangible personal property, services or digital goods in any forum, and collecting payment from the customer and transmitting it to the retailer directly or indirectly. H.F. 4 would have required marketplace providers to collect and remit taxes to the commissioner for all facilitated sales unless they fell under an exemption.

With regard to tax administration, H.F. 4 directed the state revenue commissioner to establish a private letter ruling program to provide taxpayers with assistance regarding specific transactions.

Another program would have authorized certain taxpayers who are audited under the individual income and corporate franchise tax programs or the sales and use tax programs to request audits under dual chapters of the tax code at the same time.

Tax Cut Provisions

Major tax-cutting provisions in H.F. 4 included:

  •  a phase-out of income taxation on Social Security income, providing relief to 350,000 seniors;
  •  a credit for contributions to 529 college savings programs;
  •  a credit for contributions to first-time homebuyers’ accounts;
  •  a credit for college graduates paying off student loans;
  •  a property tax exemption for small businesses;
  •  an increase in the dependent care tax credit equal to the federal credit for taxpayers with gross income of up to $50,000;
  •  an adjusted credit for state residents working in Wisconsin in years when no income tax reciprocity agreement is available;
  •  a credit for “beginning farmers”;
  •  tax incentives for small businesses to purchase new equipment; and
  •  a property tax exemption on the first $150,000 of commercial-industrial property.

To contact the reporter on this story: Michael J. Bologna in Chicago at mbologna@bna.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bna.com

For More Information

Text of H.F. 4 is at http://src.bna.com/oWp.

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