FARGO – Getting rid of North Dakota’s sales tax on clothing would level the playing field between the state’s brick-and-mortar stores and online retailers, and clothing stores in bordering states, local retailers say.
Chris Heaton, senior vice president for property management at West Acres mall, said the mall and its merchants back a bill introduced in the Legislature by Sen. George B. Sinner, D-Fargo.
“It would only be of benefit to our tenants. We fight this battle on two fronts. The Internet takes a chunk out of sales” as sales taxes are sporadically collected online, Heaton said.
“And as a border city, we compete against Minnesota, which does not have a tax” on clothing, he said.
Sinner is chief sponsor of Senate Bill 2223, which would end the sales tax on clothing, with exceptions for accessories, sporting or protective equipment, and other items.
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The bill includes $9.5 million to reimburse cities and counties for lost sales tax revenues.
If it passes, the state would also forgo an estimated $40.6 million in taxes on clothing in the coming biennium, said Kathryn Strombeck, director of research for the Office of the State Tax Commissioner.
SB 2223 gets its initial hearing Wednesday in the Senate’s Finance and Tax Committee, Sinner said.
Rick Stern, co-owner of Straus Clothing in Fargo, said at its core the bill is about fairness.
“Our problem is the Internet. No sales tax on Internet sales. Right off the bat, that’s a 7 or 7.5 percent disadvantage that we have,” Stern said.
“All we want is a level playing field,” he said. “They (big online retailers) come in and cherry-pick all the customers. Why should they have the big advantage?
“And you look at Minnesota. They don’t have the sales tax on clothes. Our big problem is not Moorhead,” it’s the Mall of America and large outlet stores, Stern said.
He said Internet sales are increasing 20 percent a year, while smaller brick- and-mortar firms struggle to eke out small gains.
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Dropping the sales tax on clothing “would just make it fair for us. I don’t know what the big problem is,” Stern said. “I could see if (the state was) in dire shape as far as revenue, but we’re not.”
Sinner said the current system sets up North Dakota businesses to get “creamed by Internet sales.”
In addition to Minnesota, Montana on the state’s western border also doesn’t charge a tax on clothing, he said.
Even if North Dakota merchants don’t lose money year to year, “they are losing market share,” Sinner said.
He said lost sales tax revenue would be made up with higher retail sales, more jobs and more money flowing through North Dakota’s economy.
Dropping sales taxes on clothing will also help nurses and other workers who need to buy uniforms or other specialty clothing, Sinner said.
He said the state has the revenues to make up ending sales taxes on clothing, but he’s unsure of the support he’ll get from the Republican-controlled Legislature.
North Dakota levies a 5 percent tax on retail sales, including clothing, though there is a long list of exemptions. There are also 3 percent sales taxes on the sale of new mobile homes and motor vehicle rental contracts.
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Fargo levies 2 cents in sales tax approved by voters – 1.5 cents for infrastructure needs and a half cent for flood control projects. That brought in $48.5 million in revenue for the city in 2014. Similarly, Cass County levies a half-cent sales tax, which gave the county $16 million in 2014. West Fargo’s 2 percent sales tax brought in $4.5 million for that city in 2014, according to the North Dakota State Treasurer’s Office.
But the Fargo, West Fargo and Cass County sales tax figures include all items – not just clothing – touched by the sales tax, county Auditor Mike Montplaisir said.
Craig Whitney, president and CEO of the Fargo Moorhead West Fargo Chamber of Commerce, could not be reached for comment.
