NEW LONDON, Minnesota – Concerns that online shopping is eating away at sales tax collection in rural Minnesota communities are largely unfounded, a new study by the Minnesota Center for Rural Policy and Development has shown.
Speaking from her home in New London, Research Fellow Kelly Ash earlier this week spoke in a webinar about what the Center for Rural Policy and Development has called the “Amazon Effect” —a widespread consumer shift to online shopping.
Ashe identified three challenges posed by the transition to e-commerce:
- Unified pricing policy.
- Increase the number of purchases based on personal experience.
- Implementation of technologies in retail trade.
As a result, Ashe said, conventional businesses had to spend more to stay competitive and thus became less profitable.
Although taxable sales for Minnesota retailers have increased 32 percent since 2010, that figure is paltry compared to 171 percent growth for out-of-state retailers. Even so, sales outside Minnesota accounted for just 13.2 percent of all state sales in 2019, a figure that Ashe dubs “relatively modest,” although it will continue to grow.
Ashe said the sharp and continuing rise in online shopping has raised concerns among local politicians that tax revenues – in particular from local taxes on option sales and taxes on commercial real estate – will have a negative impact.
LOST IN THE WEED
Minnesota is one of 37 states that allows municipalities and counties to levy local taxes on the sale of options.
Ashe said cities and counties that are “tax importers” often choose to levy local sales taxes to generate income from visiting buyers.
Regional centers such as Willmar in Kandiyohi County have developed into shopping centers over the years, making them tax importers. So, Ashe said, a place like Kandiyohi County would have many reasons to fear losing taxes on online purchases.
Another cause for concern among civilian leaders was that conventional businesses were being closed.
The sight of closed signs and boarded up windows raised concerns among officials that local taxes on options sales would run out.
“The concern was legitimate because the report shows that online retail sales are growing, while traditional brick-and-mortar retail stores are declining slightly,” Ashe said.
In 2018 alone, the US Supreme Court ruled in South Dakota v. Wayfair that states could force online retailers with “economic ties” to collect and remit sales tax. In Minnesota, a retailer is considered economically connected if it has 200 sales or more than $ 100,000 in sales in the state.
Following the ruling, Ash expressed his gratitude to the Minnesota Department of Taxes for their work in streamlining the process and ensuring that tax revenues are delivered to the right place.
In fact, the incomes of the 50 communities in Minnesota that apply the local options sales tax have grown, Ashe said.
Much of the local options sales tax revenue has been successfully collected and channeled wherever they want it, despite the rise in online purchases. Only one group of consumers has resulted in a loss of local sales tax revenues: those who live in tax-exporting counties, who shop online and receive delivery, rather than buy from tax-importing counties.
“Even though we may be losing a little from this, we still see a lot of people coming to the store and still picking up the groceries,” Ashe said.
This drop is offset by an increase in the number of tax-collecting counties who stay home and order delivery of goods instead of traveling to larger shopping areas such as St. Cloud or sister cities.
“It looks like equality,” Ashe said.
‘MOVING IN THE CUTTING-OFF’
Real estate taxes have also been hit by online purchases. However, Ashe reiterated that tax collection is “fine.”
The loss from property taxes paid by retail stores was made up in other areas.
“When we look at the data, retail stores are shrinking,” he said. “The real estate tax levied on retail is a kind of balancing act. This is a plateau. All other property tax collections continue to rise, while in retail they remain unchanged. “
Rural districts that experienced the farming crisis of the 1970s and 80s were no longer dependent on retail property taxes. In addition, the value of agricultural, residential and resort real estate continues to rise sharply, “overshadowing” the modest decline in retail trade.
Existing retail stores also increase tax revenue.
“You can see a decline in the number of retail stores, but the value of stores that still exist continues to rise because they are strong,” Ashe said.
However, the distribution of tax liability is of concern. Ashe and researchers fear that agricultural land may be too dependent on property taxes. They also fear what will happen to the tax base if the value of agricultural property stops rising or starts to fall.
MAIN STREET RECYCLING
The webinar also explored how the Amazon Effect changed one of the small town’s most notable signatures: its main street.
For decades, Main Street has been the focus of a small community, Ashe said.
A cruise down the main street of a small town looks very different today than it did in days gone by, although that doesn’t mean the city isn’t thriving.
“You’re driving down Main Street and you’ll have this interpretation that the city is dying,” Ashe said. “I grew up in Hancock, a city of about 800 people. He doesn’t have Main Street at all, but he can’t keep a house on the market. “
Ashe advised small towns to abandon the notion that Main Street should define the community. Rather, he believes cities should showcase themselves as good places to live, have a family, and attend school.
“If you’re going to define your city on the main street, which is a small percentage of your actual activity in the area, you are setting yourself up for failure,” he said.
Overall, Ashe said, small towns will see “global economic victories” thanks to decentralization and new opportunities to attract residents.
“The idea that we have an economic center within 60-80 miles of everyone will still exist to some extent,” he commented. “People can now live in these dormitory areas and have access to really great food and quality items that I don’t think were available before.”