Utah is moving to become a full voting member in the multistate organization pushing to let states begin collecting billions of dollars in sales taxes they say they are owed on online purchases.
The Beehive State was key in helping launch the movement in 2000, but then took a big step back in 2006 over a provision that would have required changing the way sales tax rates around the state were calculated.
Utah and online taxes
Utah will assume a leading role in the Streamlined Sales Tax movement this year.
State Rep. Wayne Harper, R-West Jordan, is set to ascend to the presidency of the governing board of the multi-state organization at the group’s annual meeting Sept. 18-20 in Salt Lake City.
State officials expect Utah’s petition for full membership will be effective beginning Oct. 1.
In a special meeting this week, the Utah Tax Commission voted unanimously to petition the Streamlined Sales Tax Governing Board for full membership. The main benefit, according to Commission Chairman Bruce Johnson, will be voting rights.
However, there’s also a chance the state could see a slight increase in revenue from online retailers who voluntarily collect sales tax from customers.
Currently, Utah receives about $4 million annually from those businesses, Johnson said, "it might go up a little bit."
Proponents of remote-sales taxation cite a study that estimate potential revenues of around $11 billion nationwide — including some $88 million to Utah.
Former Gov. Mike Leavitt was a big proponent of an online tax strategy, pointing to the hit to state budgets as commerce increasingly goes digital. He also argued it as a matter of fairness — that retailers with physical stores were required to collect sales tax while court rulings allowed online vendors to go tax free.
Opponents counter that states shouldn’t expect out-of-state retailers to function as their tax collectors and that those retailers don’t use any of the state services that benefit in-state businesses. Under a U.S. Supreme Court ruling, states cannot force companies with no physical presence in the state to collect taxes.
"What we do oppose," said Jonathan Johnson, president of Utah-based Overstock.com, "is states trying to get remote sellers to collect sales tax for them in an unconstitutional way."
Most states, like Utah, have laws on the books requiring residents to report and pay the sales tax for online purchases — but few comply.
Therefore, says Johnson, while not technically a tax increase, collection of such levies "is going to feel like a new tax to people who have shopped on the Internet."
He said Overstock and others would support Congress passing an e-commerce tax law so long as it required states, among other things, to compensate companies for the time and expense of collecting taxes and to pay for and provide the necessary collection software.
Critics also point to the complicated overlay of thousands of taxing jurisdictions and rates nationwide.
Part of the goal of the streamlined sales tax effort is to simply the administration of collecting e-commerce taxes by having the participating states adopt uniform definitions of what is taxable and how rates are calculated.
Utah in 2006 balked at a requirement of the multi-state organization that all taxes be calculated based on where goods were delivered, rather than on point of sale.
The change can make a big difference. Sales tax rates vary in Utah from a high of 8 percent in Panguitch to a low of 5.75 in Fillmore.
But last month the organization amended its requirements to open the door to full membership to states like Utah that base in-state sales tax on point of sale, but use point of delivery to calculate remote sales taxes.
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