Online holiday shoppers in North Dakota will again notice something different in 2019, and the state is getting the benefits.
The 2019 holiday season is the second year of the state’s internet sales tax, a relatively new phenomenon that arises from a 2018 U.S. Supreme Court ruling. Ryan Rauschenberger, state tax commissioner, said it’s brought in $27 million in revenue since last year, exceeding his office’s expectations and tapping a nationwide market that’s poised to grow.
In an era in which state budget fights weigh programs that are just hundreds of thousands of dollars, that’s a tangible difference for government services.
“And that’s money that wouldn’t have existed if the Supreme Court hadn’t made this decision,” Rauschenberger, an elected Republican, told the Herald.
States’ right to tax internet sales has a long legal history, rooted in catalog mail-order sales. In 1992, the U.S. Supreme Court took a case between the state of North Dakota and Quill Corp., a mail-order retailer, and issued a ruling that left states unable to tax remote retailers without a physical presence within their borders — upholding substantial earlier precedent. That ruling — made years before internet shopping became popular — was overturned in 2018 by a lawsuit between South Dakota and retail giant Wayfair.
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Now, internet sellers and other remote vendors are required to collect North Dakota sales taxes if they surpass $100,000 in annual North Dakota sales revenue. That money funds not just North Dakota’s general sales tax of 5 percent (there are other rates for farm equipment and alcohol), but local sales taxes, too. Rauschenberger said that since those taxes started coming in during 2018, the state has had 5,700 companies sign up to remit taxes, and about $6.5 million of the total of $27 million is bound for local communities with sales taxes — like Grand Forks, Fargo and beyond.
There are still struggles with compliance, which Rauschenberger said will never be “100 percent.” That’s because the sellers themselves are the ones who collect and pay the taxes, and without a brick-and-mortar location in the state, it can be tough to track who’s buying what online from within North Dakota. Rauschenberger said his office works with the Multistate Tax Commission, a league of numerous of states that collaborates on things like enforcement — making it easier to identify internet sellers and approach them to pay their fair share.
The tax is significant for the state and local communities alike. In Grand Forks, city leaders have been closely watching revenues and seeking more funding to pay for infrastructure projects. Leaders passed a 0.5% sales tax in 2015 to help back water and road projects, and other sales tax income is additionally split to help fund items like the Alerus Center and the city’s general fund.
Grand Forks City Clerk Sherie Lundmark said it’s difficult to know how much the city is making on internet sales taxes, because the tax funds — which are collected and disbursed by the state — arrive in a lump sum months after the original sale is collected, passed to the state and is then disbursed to the city.
However, sales tax revenue records she shared with the Herald show that sales tax collections, through 2019, are the highest they’ve been since 2016, even adjusting for the new half-penny sales tax. With the sales tax added, total 2019 sales tax income’s running total comes to $23.3 million. That’s up from $14.8 million collected through November in 2009.
City Administrator Todd Feland said the new source of sales tax income is important for the city, not only to support the streets that trucks use to deliver internet parcels, but also to help make local brick-and-mortar stores — long subject to a sales tax — more competitive with online rivals.
“I think it’s a really important component,” Feland said.
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