Sales tax bill would level field for online shopping
Online shoppers, the taxman approacheth.
On Monday, the U.S. Senate is scheduled to vote on and expected to approve the Marketplace Fairness Act, the first step toward requiring online retailers to collect sales tax on online purchases.
E-tailers have been exempted from collecting the tax for decades because the courts deemed it too difficult for them to calculate all the thousands of different tax rates imposed by cities and states. Large retailers including eBay and Salt Lake City-based Overstock continue to argue that point.
But Main Street shopkeepers and others argue that new software and technology simplify the math, and online retailers need to do what they've been required to do for years: procure sales tax.
State Sen. Wayne Harper, R-Taylorsville, who has pushed for the change for the past 12 years, says it's a matter of fairness.
"Online non-local business has had a competitive advantage over local business," Harper said. "Finally this discrimination should be dealt with and should go away this year."
But what would the change mean for consumers?
If the bill passes, you'll definitely pay a bit more at the online checkout. Still, Utah State Tax Commissioner Bruce Johnson emphasizes this is not a new tax.
"The sale has always been taxable," he said. "Most consumers have been blithely unaware of the obligation."
Indeed, we're all supposed to be paying tax when purchasing a song on iTunes or buying a sweater from the Lands' End catalog. It's called a "use tax" and the rate depends on where you live (for example, Salt Lake County residents pay 6.85 percent while those in Washington County pay 5.95 percent). There's a line at the bottom of the state tax form asking if you have any use tax to disclose for online and catalog purchases.
Because e-tailers haven't been doing the calculations, Johnson admits it's been tricky for consumers to figure out just how much use tax they owe, noting that he recently downloaded two books on his Kindle. One was taxed, the other was not.
"You've got to look at every invoice," he said.
And the fact is, not many of us are. Just 13,800 of Utah's 1.2 million taxpayers remitted taxes on about $650,000 worth of online purchases in 2011. That amounted to about $50 in use tax on average.
Kate Bradshaw is "one of the less than 1 percent" who pays use tax for her family's online goods. She acknowledges she likely wouldn't belong to that elite group if she wasn't also vice president of the Utah Retail Merchants Association.
Bradshaw only started paying the tax when she found out about it three years ago when she got the job.
"Once you know, I feel like you have a duty to pay," she said. "If you're a consumer in the state of Utah, the tax is due."
She says members of the Utah Retail Merchants Association have voiced "zero" opposition to the bill. She also says she hasn't heard negative comments from Utah consumers either and doesn't expect to.
"If all of the sudden consumers had a several hundred dollar tax bill due, that would get consumers' attention," she said. "But this is one of those taxes that's paid in little bitty bites through purchases made over the course of the year. I think initially [consumers] may notice, but eventually they'll just go about their business."
University of Utah family and consumer studies professor Robert Mayer says shoppers need to take the long view, pointing to the benefits he thinks the online sales tax revenue would bring to local business owners and state budgets.
"What is it about the Internet that means you shouldn't have to pay taxes?" he asked. "I think [online shoppers] realize they've been lucky but consumers should not want the free lunch."
Under the proposed legislation, small businesses bringing in less than $1 million in remote sales won't have to collect.
While the bill is expected to pass in the Senate, it will likely face tougher opposition in the House of Representatives, where anti-tax and small-government advocates are pushing hard for a defeat.
Marketplace Fairness Act
• The Marketplace Fairness Act would require online retailers to collect sales tax.
• Supporters say it would level the playing field between online and brick-and-mortar retailers. Opponents say the thousands of different tax rates makes collection too hard.
• The U.S. Senate votes on the bill Monday. The House version is before the Subcommittee on Regulatory Reform, Commercial And Antitrust Law.