Legislators look to mail-order, Internet tax

PIERRE — The Legislature is considering two new tactics in South Dakota’s long battle to collect state and local sales and use taxes on purchases made through mail-order and the Internet.

A Senate panel endorsed both measures Monday.

One would require companies to post notices on their Internet sites that South Dakota sales and use taxes might be due. However the legislation, SB 146, contains no penalty for non-compliance.

The other piece of legislation, SB 147, would expand the definition of the legal presence of a business in South Dakota.

Internet and mail-order businesses based outside South Dakota would be determined to have a South Dakota presence, or nexus, for tax purposes if they have warehouses, distribution centers, sales houses or similar facilities within the state.

The Senate Taxation Committee endorsed both measures on 6-1 votes.

Sen. Deb Peters, R-Hartford, is prime sponsor of the two bills. She said South Dakota is missing out on an estimated $35 million annually in sales and use taxes that go uncollected on remote sales.

Peters acknowledged there isn’t a penalty for failure to post the notice.

“It’s all about communication and awareness,” she said. “This is just one more thing we can do at the state level to chip away.”

South Dakota is among 24 states who form a streamlined sales-tax coalition that has been pushing for voluntary compliance by companies and for a federal law.

The dissenting voice in each instance was Sen. Jim Hundstad, D-Bath. He questioned why any business would put the South Dakota notice on its website if there’s no penalty. He also said this was no time to be courting lawsuits when South Dakota already is running a budget deficit.

The Washington, D.C.-based Direct Marketing Association has sued Colorado over a tougher notice law that requires businesses to report sales and customers to the state government there.

Both bills were opposed in testimony Monday by Jerry Cerasale. He is DMA’s senior vice president for government affairs and was the only witness to speak against them.

Cerasale said expanding the nexus law to include warehouses, distribution centers and other facilities used in mail-order and Internet sales would “pierce the corporate veil” that businesses specifically used.

“We’re not certain what the downwind consequences are,” he said.

Oklahoma has a similar notice law and Kansas has a similar nexus law. Neither state has been sued by DMA.

The two bills will be up for debate by the full Senate as early as this afternoon. The South Dakota Retailers Association and the state Department of Revenue support both.

A 1992 U.S. Supreme Court decision currently prevents states from directly collecting sales taxes on remote sales from businesses located outside their boundaries.

“Seems like a pretty substantial number,” Retailers executive director Shawn Lyons said about the $35 million going uncollected in South Dakota, “when you look at the budget difficulties the Legislature is facing this year.”

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