A fair tax on Internet sales
Utah retailers are coming together in support of the Marketplace Fairness Act, which would close the unjust Internet tax loophole that allows online-only sellers to avoid their sales tax responsibility.
Some people have the mistaken impression that this measure would institute a new "Internet tax," but nothing could be further from the truth. In fact, it could actually result in lower tax rates.
First off, let's make one thing clear. The Marketplace Fairness Act does not impose a new tax of any kind. It simply creates a system that allows states if they choose to do so to collect the sales taxes they are legitimately owed.
Current sales tax laws, and a 20-year old Supreme Court ruling that did not foresee the growth of Internet commerce, prevents states from collecting the tax.
Sales taxes have always been due on online purchases; online-only retailers just don't have to collect and remit this tax. Unlike local businesses, which dutifully collect and submit every penny of sales tax owed, these Internet-based sellers openly shirk their responsibility and get away with it because of the "sales tax loophole" that was created by the court.
It is easy to see how this lack of "e-fairness" impacts our communities.
Local businesses fight an uphill battle against online sellers who unfairly receive an automatic pricing advantage because of the Internet sales tax loophole. This can amount to several percentage points, a huge difference in the highly competitive world of retailing.
Sales lost to online businesses mean less money to hire workers, expand product offerings, and open or upgrade services and facilities. All of those things hurt not only local businesses, but also consumers and communities.
Sales tax is also an important revenue source for state and local governments, which fund items like first responders, road construction and many of the other basic services. If a significant part of sales tax revenue is lost because online sellers don't pay, other taxes must be raised to make up the difference.
That brings us back to the Marketplace Fairness Act, which is currently being debated in the U.S. Senate. If sales taxes were fairly and uniformly enforced, other taxes could be lowered.
This is not fantasy. The Utah Legislature passed SB58 this year, a bill that requires the Legislature to place any revenue collected from online retailers in a restricted account and then consider using this revenue to reduce the overall tax burden on Utahns.
This is one of the reasons that many conservatives support the Marketplace Fairness Act. They realize that it is not a new tax, and that it could make the tax system less regressive and fairer for everyone. In fact, e-fairness legislation is garnering wide bipartisan support in Congress, something almost never seen these days.
This is an important issue for Utah. Our communities have been cheated out of nearly $1 billion in lost sales tax revenue over the last five years.
No one knows how many Utah businesses have been required to lay off employees or curtail their operations. Some may even have been forced out of business.
Utah retailers, the small business owners whose stores line downtown streets and anchor local shopping districts, do not want a new tax. They simply want existing taxes to be levied fairly and equally on all businesses, regardless of where they set up shop or how they transact their sales.
The Utah Retail Merchants Association urges Sens. Orrin Hatch and Mike Lee to support this act and call upon Utahns to urge them to support tax fairness as well.
David Davis is the president and chief legal officer of the Utah Retail Merchants Association, which represents retailers throughout the state of Utah.