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Sales tax windfall expected for Fargo, West Fargo after Supreme Court case

North Dakota Tax Commissioner Ryan Rauschenberger talks about the Supreme Court ruling on sales taxes and online retailers at the Fargo Moorhead West Fargo Chamber of Commerce Thursday, July 12. Tu-Uyen Tran / The Forum

FARGO — A Supreme Court ruling requiring more online retailers to collect sales taxes will likely benefit Fargo and West Fargo significantly, according to North Dakota Tax Commissioner Ryan Rauschenberger, who spoke at the Chamber here Thursday, July 12.

The two cities are the retail centers for North Dakota, generating about a fifth of all sales tax generated in the state, he told The Forum. "I would assume that Fargo itself is going to be one of the bigger local beneficiaries of the Supreme Court overturning the physical-presence rule," he said, though he doesn't have an exact estimate for either city.

For Fargo and West Fargo, that would mean more funding for streets and sewers.

The Tax Commissioner's Office has estimated that $20 million to $50 million in additional sales tax could be generated statewide thanks to the court ruling in South Dakota v. Wayfair, Rauschenberger said.

Currently, retailers generate about $900 million a year in sales tax in North Dakota. That amount includes taxes collected by the state as well as cities and counties.

Rauschenberger said it's true that some major online retailers, such as Amazon, already collect sales tax but many other major retailers, such as Wayfair, do not and the estimate accounts for that.

He spoke before the Fargo Moorhead West Fargo Chamber of Commerce's Public Policy Committee.

According to Rauschenberger, a lawsuit that North Dakota lost before the Supreme Court in 1992 had established that retailers are only required to pay taxes on sales made in states where they have a physical presence. That meant catalog companies and online retailers could avoid taxes in most states, giving them an advantage over brick-and-mortar stores.

On June 21, the court set a new precedent with the South Dakota case, saying no physical presence is needed, though firms that don't sell very much should be exempted.

Brad Schlossman, the CEO of West Acres mall, told The Forum that he does expect an impact on his retailers but probably not a very dramatic one. "I don't actually think there's going to be a big pendulum swing because of sales tax collection."

In the early days of online retail, he said, he used to hear people say they can save on sales tax by buying online but not in recent years. He said businesses have to compete on service these days.

Rauschenberger told Chamber members that the Supreme Court ruling is just the beginning of many likely changes. There are five states that do not collect sales tax, he said, and some have warned other states they'll fight any attempt to collect taxes from their businesses. He said his department has considered creating a fund to pay for legal action.

Of the states that do collect sales tax, 24 have standardized tax laws that reduce the burden on retailers selling in many states and the rest are a patchwork that Congress could take action to require standardization, he said.

His office has given online and catalogue retailers doing business in North Dakota until Oct. 1 to register and begin collecting sales tax, he said.

Tu-Uyen Tran
Tran is an enterprise reporter with the Forum of Fargo-Moorhead. He began his newspaper career in 1999 as a reporter for the Grand Forks Herald, now owned by Forum Communications. He began working for the Forum in September 2014. Tran grew up in Seattle and graduated from the University of Washington.
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