This Cyber Monday, the ka-ching of virtual cash registers will be music to the ears of government officials in states that have recently ramped up online sales tax collection.
Utah, however, is not among them.
Lawmakers in the Beehive State have long eyed internet transactions as an untapped source of sales-tax money. But even though a U.S. Supreme Court ruling earlier this year opened the way for states to begin reaping these revenues, Utah will wait a bit longer to see the payoff.
That’s because an online sales tax bill that the Legislature passed earlier this year — a measure that could pump an additional $60 million per year into state coffers — doesn’t go into effect until Jan. 1. Meanwhile, states such as Maine, Oklahoma, Hawaii and Vermont have already started taxing all larger e-commerce companies, according to Stateline.
Why has Utah left this money on the table?
“The reason we did that is we wanted there to be plenty of time for the sellers. We wanted to give them plenty of time to change their accounting systems or their software to be able to comply,” said state Sen. Curt Bramble, R-Provo, who sponsored the online sales tax bill.
The Supreme Court decision in South Dakota v. Wayfair affirmed states' authority to demand that online retailers collect sales taxes, whether or not the companies have brick-and-mortar locations in the states in question.
Even without the ruling, Utah has already been receiving about $140 million in taxes related to internet purchases through voluntary agreements with Amazon and Airbnb.
Utah officials have estimated that it could bring in another $58 million in state revenues and $25 million in local revenues through the expanded tax collection made possible by the court ruling and subsequent legislation.
Bramble’s bill, passed in a July special session, will allow Utah to exercise the new taxing authority but gave businesses more than five months to adjust to the changes. Bramble acknowledged that businesses have already been updating their processes, since some states have pushed forward to cash in on the Supreme Court decision. But he said he was worried that following suit could put Utah at legal risk.
“Our view was that if we put an immediate effective date on it, there’s a high likelihood that we may be back in court,” Bramble said, explaining that online retailers could claim the constrained timeframe places an “undue burden” on them.
Even when it does take effect, Utah’s new online sales tax law still won’t capture every single internet transaction, Bramble added.
The South Dakota law upheld by the Supreme Court only taxes companies whose business inside the state exceeds $100,000 in revenue or 200 transactions. Retailers with sales below this cutoff didn’t have to collect the tax.
Because the Supreme Court vetted this particular law, Utah adopted the same threshold for applying the online sales tax, Bramble said. So while Amazon must charge the tax and pass it on to the Utah government, many third-party vendors who use the e-commerce giant as a platform will not have to impose the levy, he said.
Lower courts are still considering the appropriate cutoff for applying the internet sales tax law to online retailers, Bramble said, and Utah’s standard could change in the future depending on how this develops.
Meanwhile, Utah officials have already spoken for much of the revenue they expect to receive from the expanded taxing authority; earlier this year, lawmakers approved a $55-million tax break for manufacturers. Another $25 million in local taxes would go to the manufacturers’ exemption.
Tribune reporter Benjamin Wood contributed to this story