Online vendors may be responsible for online sales tax

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Unassuming Utahns may be evading taxes without knowing it by shopping online.

When Utah-based consumers make online purchases from retailers without a physical presence in Utah, they are responsible to keep track of state taxes on those items and report it as Use Tax on their annual income tax returns, according to Utah Tax Commission. 

 Amazon on Thursday, March 13, 2014 said it is raising the price of its popular Prime membership to $99 per year, an increase of $20. (AP Photo)
Out-of-state online retailers with no physical presence in Utah, like Amazon, are not obligated to gather state sales tax in Utah. (Associated Press)

The problem is less than one percent of citizens know about and pay this tax according to Dave Davis, president and CEO of the Utah Retail Merchants Association.

Economic pundits are calling for the Utah State Legislature to shift the obligation of collecting this tax from consumers to vendors in Utah and nationally.

“We retailers are equipped to be able to look at a transaction, determine what the sales tax rate is, collect that from the consumer at that point and remit it back to the state of Utah,” Davis said. “We’re good at that and that is where the responsibility ought to lie and not with the consumer.”

Estimates say the state is missing out on $80 million to $300 million in tax revenue in the face of shrinking tax bases, whittled down by unpaid taxes on out-of-state online sales, which are a growing part of the global economy.

Sen. Curt Bramble, R-Provo, spoke to the Utah Taxpayers Association on Monday, Jan.11 and described the efforts of the National Conference of State Legislatures to shift the obligation to collect and remit sales tax to all online vendors under federal law. Bramble is president of the organization.

Bramble said the conference hopes to prod Congress to action over the issue of online sales taxes or to create state laws that will  prompt the Supreme Court to overturn a ruling that created a national gray area about who is obligated to collect sales tax for remote sales.

“Because this is a tax that is due and payable, it makes sense to reduce the hassle and to make it the easiest way for citizens to comply,” Bramble said.

Both Bramble and Davis claim Utah will reduce the state sales tax rate if the state can capture this section of the tax base and place all vendors doing business in the state under the same sales tax.

Billy Hesterman, vice president of the Utah Taxpayers Association, said this will be a “revenue-neutral move,” or that the reduced rate would still bring comparable money to the state coffers.

“Truly conservative tax principles say that the broader the base, the lower the rate and everyone having skin in the game,” Bramble said.

Davis’ association represents primarily brick-and-mortar retailers, and he claims that these type of sellers have been at a disadvantage to online-only retailers for years.

He said it is not uncommon for people to use businesses’ time and facilities to get educated on products and then buy them from online retailers that won’t charge a sales tax.

“It has been incredibly harmful to brick-and-mortar, main street retailers present in Utah who are hiring Utah workers, paying property taxes, income and payroll taxes and are really contributing to the economy,” Davis said.

He claims the only contribution of online vendors is to the parcel industry and make no “real contributions to the local economy.”

“What we are trying to do is level the playing field so that all purchasers are treated the same,” Bramble said. “If it is a taxable sale, taxes will be collected at the time of the sale. If it is a taxable sale, every seller would be required to collect the tax.”

A level playing field would bring better overall competition to the market for all vendors in Utah, Davis said.

Hesterman said this issue is a long-time coming with burgeoning online sales.

“We’ve evolved, we’ve seen the Internet Age come. Now we are seeing where there might be some way to find compliance and find a way for business to easily understand what the proper rate is to charge to the right customers,” Hesterman said.

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