I think we are all born with an innate sense of fairness. We all want to be treated fairly by others. In our system of government, we also expect that we will all be equal and fairly treated under the law; that policies and principles will treat like entities the same.
We have a sales tax policy in place right now that is not fair to our local merchants and provides an incentive to out of state online merchants. Our local merchants are the backbone of our communities. They contribute property taxes, corporate income taxes, employ our citizens, give our communities their local flavor, and give back in the form of many charitable donations. These local merchants also serve as the collector of the state's sales tax, which adds 6.75 percent in tax to each purchase.
The rapid growth of online only retailers has given rise to a serious and growing problem. The online retailers residing outside of the state of Utah don't collect sales tax, which means the total price on their products doesn't reflect the 6.75 percent tax that is owed. Online retailers pass the burden for remitting the sales tax back to the purchaser who then must remit the use tax on their annual state income tax return. Unfortunately, the Utah State Tax Commission reports that less than 1 percent of Utahns report or pay sales and use tax on their tax returns. Yet, the percentage of Utahns making purchases online is likely much higher than the 1 percent percent of the population that reports sales and pays the tax. Many Utahns are not even aware they owe tax on these online purchases because they are used to the tax being assessed and collected at the retail level.
The impact on our local retailers is significant in terms of lost sales attributed to the Internet "no sales tax" discount. Our local retailers are used as "showrooms" where the customer handles merchandise, become educated about a product, but then buy online because it is "cheaper." The impact to the state in terms of lost revenue is huge. A 2011 Janney Capital Markets' study estimated that Utah misses out on $180 million each year in online sales tax that is uncollected. This is on-going revenue as opposed to one-time money, which means every year we repeat a new loss of $180 million plus. Revenue lost at a time when we have a growing list of transportation, education, and economic development needs. This year I am the floor sponsor of an important bill, SB226 Sales and Use Tax Amendments that seeks to bring a measure of fairness to this issue of sale tax collection between brick and mortar and online retailers through an expanded definition of what constitutes nexus for tax collection purposes. The tax is owed, this bill just changes the collection method to one that is more fair and efficient.
It is important to note that while SB226 deals with the obligation of retailers to collect and remit sales tax, the obligation to pay these taxes is not in question. Utah citizens who purchase from retailers who elect not to provide sales tax collection services still have the obligation to remit these taxes on their income tax returns as use tax. Retailers who do not collect and remit these taxes on behalf of their customers place their patrons in tax audit jeopardy.
While everyone would agree that a federal solution to this issue is the best solution, Congress has demonstrated an extraordinary ability to do nothing. I do not feel comfortable sitting back, doing nothing and hoping that Congress will solve the problem while Main Street businesses here in Utah continue to wither away because government has decided to pick winners and losers with regard to tax collection.
Brad Dee is the House Majority Leader. He represents House District 11, which covers portions of Davis and Weber counties.