PIERRE -- This week, the U.S. Senate is expected to vote on Internet sales-tax legislation that is strongly supported by retail businesses in South Dakota. If it eventually becomes law, the state treasury and municipal governments throughout South Dakota could reap tens of millions of dollars annually in sales taxes that currently are going uncollected on purchases made online.
Democrat U.S. Sen. Tim Johnson is a co-sponsor of the Senate legislation and Republican U.S. Rep. Kristi Noem is a co-sponsor of the House version. But Republican U.S. Sen. John Thune didn’t put his name on the Senate version.
That has insiders watching to see what Thune does when the bill comes up for action on the Senate floor.
“We -- South Dakota folks -- have tried and tried to encourage him to be a sponsor. He has been a co-sponsor in the past. He has never given us a reason why he would not be a co-sponsor,” state Sen. Deb Peters, R-Hartford, said Wednesday.
She is second vice president for the governing board of the national streamlined sales-tax organization, which has been working for a decade to allow states and cities to collect sales taxes on business conducted over the Internet.
Key tests Monday and Wednesday saw Johnson and Thune both say "yea" each time to proceeding to the bill.
The Monday tally was 74-20 in favor. Seventeen Republican senators voted against. Among them were Marco Rubio of Florida and Rand Paul of Kentucky, who could be candidates for the 2016 Republican nomination for president.
The House version still awaits a hearing in committee this year. Peters said the House held a committee hearing last summer. “There has been movement in Congress. It won’t be easy to get it to the House floor. However, we are hopeful,” she said.
South Dakota legislators and governors have been trying for 12 years to close the loophole that allows businesses without a physical presence in the state to forego collecting sales tax on transactions conducted over the Internet.
In 2001, then-Gov. Bill Janklow organized the streamlined sales tax task force.
In 2002, the Legislature passed a specific chapter of laws authorizing the state Department of Revenue to enter into agreement with one or more other states to pursue a uniform system of sales tax administration.
In 2006, state lawmakers created a tax-relief fund to receive any taxes voluntarily collected and remitted by out-of-state businesses for purchases made over the Internet.
A 2011 state law requires businesses out of state to give notice to South Dakota customers that they are subject to state use tax on purchases made through the Internet other than for exempt items.
In addition to the state secretary of revenue, the Legislature has appointed four lawmakers to serve on the national streamlined sales-tax organization.
The returning members are Peters and Rep. Justin Cronin, R-Gettysburg. The newly appointed members are Sen. Tim Rave, R-Baltic, and Rep. Ray Ring, D-Vermillion.
Scott Peterson, a past sales-tax administrator for the state Revenue Department, served as executive director for the national governing board until November, when he took a private-sector job with a company that specializes in automated sales-tax collection systems.
“How odd that one of the very few bipartisan issues before Congress is a state tax issue. Retailing has changed and the sales-tax law needs to change as well,” Peterson said Wednesday.
Before Thune’s first election to the U.S. House in 1996, he worked as executive director for the South Dakota Municipal League. Sales taxes are a major source of revenue for city governments in South Dakota.
Thune’s spokesperson didn’t respond Wednesday to an emailed question about why he wasn’t a cosponsor.
“If you’re the state governor or a state legislator, you’re going to be in favor of closing this so-called loophole,” Thune said to the Mitchell Daily Republic about the topic last month. “If you’re a consumer who buys online, there are lots of groups representing taxpayer interest that are opposed to this. It’s an issue on which there’s disagreement. I’m trying to look at all aspects of it.”
The Senate legislation requires that a business must have at least $1 million in transactions in order to be required to comply.
A previous estimate made by University of Tennessee researchers said South Dakota was losing $48 million to $58 million annually in sales taxes uncollected on Internet purchases.
Shawn Lyons, head of the South Dakota Retailers Association, said there is an expectation the House will vote on its legislation this year. He said there are differences between the House and the Senate versions that would need to be worked out if both pass.
The retailers group supports the overall legislation. Thune has cast procedural votes to bring the Senate version forward, which Lyons sees as a good sign.
“Next step is we hope (Thune) will vote for final passage,” Lyons said. “This issue is a top priority for the retail community and its members. We had productive conversations with all three members of our delegation (Thune, Johnson and Noem) while in D.C. last week.”