This is an archived article that was published on sltrib.com in 2017, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.
It is irresponsible for the governor, legislators and other internet tax proponents to continue to crow there is a $200 million to $350 million per year shortfall of uncollected sales tax by out-of-state internet retailers. That number is a gross exaggeration, and they know it.
In a January op-ed, I gave a back-of-the-envelope calculation that if the state took Utah's share of all retail e-commerce nationwide, and then applied Utah's sales tax rate, it would only come up with about $215 million in total Utah internet retail taxes owed. If that is the case, how then can internet tax proponents claim the uncollected shortfall is $350 million? Or even $200 million? Is Utah only collecting $15 million in total retail internet taxes? It didn't sound right. In fact, it sounded … fishy. Very fishy.
I acknowledge I might have overlooked something. In fact, I thought maybe someone in the state government, with access to the same market data and Utah tax records, would prove me wrong when I called the real shortfall number closer to a "rounding error" in the total state budget.
I waited. And waited. And … nothing.
No one challenged the numbers. Rather, they just continued shouting the $200-$350 million figures.
I had the data given to the state's Legislative Fiscal Analyst. The LFA is the most recent source of the $200 million figure, basing it on eight-year old data from a questionable 2009 study from the University of Tennessee. Despite questions and without much explanation, the LFA again parroted the same $200 million shortfall figure in support of two wrong-headed internet tax bills now skulking through the current legislative session. Unbelievable!
So once again I sharpened my No. 2 pencil, and I went at it differently.
Here's what I did: I took the top 100 internet retailers, which account for approximately 87 percent of all retail e-commerce nationwide. Then I had someone test each to see which collected Utah taxes and which didn't.
Here's what I found: Of the top 100 internet retailers, 81 collect Utah sales tax. That's right. They already collect a huge portion of the supposed shortfall. And, it turns out, most of the 81 who collect are the largest companies in the top 100. By this calculation, the estimated shortfall from those not collecting in the top 100 only amounts to just $16.3 million. Moreover, many other internet companies sell such a small amount in Utah that some of the proposed legislation would exempt them from collecting sales tax, and thus should not count in the estimated shortfall the state would collect. Other organizations have validated these numbers.
That means, in the end, when you add those who do not collect the shortfall number will be significantly less than $200-$350 million — perhaps more than 90 percent less.
Now, admittedly, some sales tax goes uncollected by some usually smaller out-of-state internet retailers. But it is not the windfall bonanza ballyhooed by Utah's tax proponents now backing job-killer tax legislation that will put thousands of internet advertisers out of work and draw the state into a constitutional, long-term, multi-million dollar lawsuit that Utah, by all accounts, will likely lose.
So in the face of these facts, why do proponents continue to chant "$200 million" and "$350 million" when they know the figure is much smaller?
The answer is, when you're proposing unwise, job killer legislation that will put people out of work and get the state sued, you need a big shiny engine — a big number that will drive reasonable legislators to consider supporting your bill. Never mind the facts.
Well, look at the facts and peek under the hood. Instead of a big shiny engine, all you'll find is a hamster wheel.
The governor, legislators, the Legislative Fiscal Analyst and other internet tax proponents need to come clean and admit their $200-350 million shortfall figure is much, much smaller.
And we need to let them know, for Utah taxpayers' sake, basic math must still be a core competency.
Jonathan Johnson is the chairman of the board of Utah-based Overstock.com and a former gubernatorial candidate in Utah.