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Online sales tax fight set to resume in Utah Capitol, but this year with a wrinkle

First Published      Last Updated Feb 17 2017 04:46 pm

Legislature » Income-tax plan to fund schools changes the equation, but critics still say internet sales surcharge is “taxation without representation.”

After lively debates last year, battle lines have formed again over whether Utah should try to collect more tax on internet sales. Hundreds of millions of dollars could be at stake.

State Sens. Curt Bramble, R-Provo, and Wayne Harper, R-Taylorsville, just introduced the two main bills seeking to do that in different ways. Critics again are targeting both as unconstitutional attempts to create taxation without representation for out-of-state firms.

But the conflict is different this year in a major way because of the Our Schools Now initiative to put an annual $750 million income tax hike for education on the ballot.

"How can we have a discussion about raising taxes elsewhere for education when we're not collecting everything that we are already entitled to collect?" asked Bramble.

It was the same message Gov. Gary Herbert used in proposing his 2017 budget and in his State of the State address.

Bramble and Harper say the education-funding debate vastly improves the chances of passing an online sales tax bill.

By law, internet retailers are required to collect sales tax for online sales only if they have a physical presence in the state, such as a store or distribution center.

Otherwise, buyers in Utah are required by state law to pay the sales tax themselves by adding it to their annual income tax return.

Few do.

Estimates about how much the state loses every year from unpaid sales tax have ranged between $80 million and $350 million a year, with the governor's office putting it around $200 million.

But the Utah State Tax Commission recently cut a deal with online sales giant Amazon — which accounts for 21 percent of internet sales nationally — to voluntarily collect Utah sales tax. (Terms have remained confidential except for the fact that it receives the same 1.31 percent handling fees as other retailers.) Some say the Amazon agreement will vastly reduce how much Utah loses and perhaps do away with the need for the new bills.

Bramble has introduced SB110. "It says that if a merchant has over $100,000 of sales in Utah, [it has] to comply with the same sales-tax laws that an in-state merchant must" — and it is required to collect tax on its sales.

If that portion of the bill is eventually found to be unconstitutional, it has a backup provision which would require out-of-state merchants to collect the Utah tax if a Utah-based blogger or firm carries online advertising links for them. "That has been upheld in court in New York," Bramble says.

Harper introduced SB101. It creates two options, he says, allowing online merchants to either collect Utah sales tax or track sales in the state and report the amounts to buyers and the state. The reporting provision could allow enforcement of the current, but mostly ignored, law requiring taxpayers to make direct payment to the state Tax Commission.

Court decisions have upheld laws elsewhere with reporting requirements, say Harper and Bramble.

Evelyn Everton, Utah director of Americans for Prosperity, attacks both bills, repeating arguments that helped to block them last year.

Such measures "really create the situation of taxation without representation," she says. For out-of-state online retailers, "you have no representation in Utah but become the state's tax collector."

She adds, "This effort is unconstitutional and creates major problems for people who don't have any representation in Utah."

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