Any new local sales tax formula should include e-commerce taxes

Thursday , August 02, 2012 - 4:35 PM

Steve Curtis

“So, it’s pretty crazy. Look, we’re bailing out Wall Street, we’re bailing out banks, and we’re bailing out car companies. In fact, did you know there’s a special box on your tax form this year you can check if you want a portion of your taxes to actually go to running the government?”

— Jay Leno

A strong municipality is motivated by the necessity of providing residents with fundamental services and infrastructure. City government is compelled to deal with the reality of funding them as they sustain quality-of-life expectations. A primary source for the revenue to support these benefits is local sales tax, both in structure and the growing use of e-commerce.

In its infinite wisdom, state government has put into place a formula for distributing the local sales tax. This work of art allocates 50 percent of local sales tax revenues to the city where the sale was made, or the point of sale, and 50 percent to municipalities statewide, based on their proportion of the state population.

A suggested change in the way municipal sales tax is collected and distributed has been under preliminary review in the Legislature, but to date has not gained traction. Yet, the Utah Taxpayers Association appears adamant about the change.

The proposal would split sales tax revenue into thirds, rather than the current 50/50 separation. Under this new scheme, one-third would be based on point of sale, one-third on population and one-third based on the size of a community’s total payroll for municipal employees.

It is controversial because the new formula would mean some cities and towns would get more money at the expense of others.

As the idea of expanding on the current structure intensifies, taxing e-commerce needs to be explored.

Sales tax revenue is declining, which means that taxing Internet sales is a move that needs to be seriously considered. It is mainly due to the sales tax option that many people shop online. “Why pay more when less is better?”

To assist in such taxation, you likely need an identical tax base or a similar tax rate in all jurisdictions. This way the vender knows what to charge. A similar structure needs to exist across the country.

In most cases, online retailers do not deal with the intricacies of state tax law because the present sales tax comes from where the cash register is located, not where the product is shipped or the purchaser resides.

Overall, if you revise the current 50/50 tax structure and choose not to enforce or change an e-commerce sales tax, an unintended consequence could be the increase of property taxes by local governments in order to cover increasing shortfalls.

Steve Curtis has worked as a business consultant and communication specialist. He is currently mayor of Layton. He can be reached at scurtis@laytoncity.org

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