The sales tax is an important part of most states’ tax systems, and a recent report from the Center on Budget and Policy Priorities shows that Minnesota is ahead of the curve when it comes to creating a sustainable sales tax for the 21st century.
Over the past decades, what we purchase and how we purchase those items have changed. Now we can buy our favorite books from an online retailer, make hotel reservations from an online travel company, and are spending more on services, like dry cleaning and lawn trimming, rather than goods. However, these purchases are not subject to the sales tax in several states, creating an uneven playing field among different kinds of retailers. For example, in many states, if we went to the store and purchased a book, it would be taxed, but the sales tax would not be collected when buying the same book or e-book online.
The fact that state sales taxes haven’t kept up with economic and technological changes also harms the ability of states to fund critical public services, and requires the sales tax rate to be higher on purchases that are taxed.
To keep up with our economy’s evolution, the Center on Budget and Policy Priorities suggests states adopt four improvements:
- Apply the sales tax to more services.
- Require large online retailers to collect sales taxes.
- Apply the sales tax to digital goods.
- Close a loophole that allows online travel companies to collect sales taxes on less than the full price of hotel reservations.
When it comes to these four guidelines, Minnesota is ahead of many other states. In the most recent legislative session, Minnesota modernized its sales tax to require more online retailers to collect taxes from residents, and broadened the sales tax to include certain digital goods such as e-books, music and movies purchased online. And in 2011, the Legislature closed the hotel loophole.
These changes help level the playing field for businesses and modernize Minnesota’s sales tax system to reflect today’s economy. They also provide a sustainable sales tax base to fund important investments and support Minnesota’s future success.