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The Minnesota Affiliate Nexus Tax, or, “How to Kill Online Advertising in One Easy Step”

It seems unfortunately appropriate that, on the same day that millions of Americans are writing tax checks and hustling to the Post Office, we revisit the suddenly tax-happy state of Minnesota, where another Internet tax bill is now being considered by the legislature.

Last week, we jumped into the fray opposing a pair of bills that would apply sales tax to environmentally-friendly digitally downloaded goods. Today, we take aim at SF 282, which re-defines what it means for a business to have a “nexus” (or physical presence) in the state to include affiliates who advertise on in-state websites to drive traffic to an out-of-state retailer.

Under SF 282, out-of-state retailers harm Minnesota businesses, particularly local media websites, who depend upon Internet advertising to pay for valuable information and services provided free-of-charge to Minnesota residents.

Consider the case of Minnesota Public Radio/American Public Media. MPR/APM is one of the nation’s premier public media companies, and is the largest station-based producer of programming heard every day by over 16 million listeners of national public radio. It also employs about 500 people in the St. Paul area. To support its Minnesota employees and operations, MPR depends heavily on advertising revenue from both broadcast and online media.

Here’s a screen image of MPR/APM’s home page.



One of the participating advertisers shown above is Another is, a Pennsylvania-based distributor of classical music. MPR is the largest producer of classical music programs in the nation, so ArkivMusic is a natural fit with MPR’s Shop & Support program.
Neither of these advertisers has a physical presence in Minnesota, so neither is presently required to collect, file, and remit the state’s sales tax on purchases made by Minnesotans.

SF 282 would change all of that. So, if these retailers do what more than 200 did in New York when a similar bill was passed – stopped their online advertising – what does this mean for the future of Minnesota-based businesses that rely on online advertising? In this economy, where every advertising dollar counts, it won’t be a good thing.

Remember, Minnesota consumers could still buy from Amazon, ArkivMusic, and other out-of-state retailers who stop advertising on Minnesota websites. That means SF 282 could have the unintended consequence of reducing ad revenue for Minnesota companies like MPR, without increasing sales tax collections. In no event would new money flow into Minnesota; any incremental sales tax collected just moves from the Minnesota purchaser to the state treasury, at a time when households are being squeezed by a struggling economy.

To the contrary, fewer advertising dollars would flow to Minnesota publishers and websites who employ and serve Minnesotans today.

We are working to educate Minnesota legislators about why this kind of tax is an “all pain, no gain” proposition for state citizens.