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SALT LAKE CITY — The past several years have been challenging for small businesses such as Allen's Camera to compete with virtual retailers that often aren’t required to charge customers sales tax on online purchases.
“It’s unfair right now," said Ethan Allen, owner of the three-shop local chain. "I’m paying the tax and they’re not. It shouldn’t be that way.”
Allen said he strongly supports efforts to pass a law that would require all Internet transactions to include sales tax collections, as a new bill from Rep. Jason Chaffetz, R-Utah, would do.
“(Online merchants) are very competitive pricewise, and giving them an 8 percent or 6 percent (sales tax) advantage is a huge advantage,” he said.
Companies like Allen's Camera are at a competitive disadvantage by having to collect sales tax, Allen said, while online retailers are able to skirt the cost because of what he calls a loophole that exists in the law.
Allen said customers frequently ask him to forgo the sales tax in order to reap some savings.
“Most of the things in electronics that I sell have a (profit) margin of 8 to 10 percent,” he explained. “So there is no chance that I could 'eat' the sales tax.”
The owner of the local camera chain said he would like to see sales tax collected based on the locale of the consumer, as Chaffetz has proposed.
Companies are able to vote on the taxes in their area, Allen said, so “it makes it fair because they have control over their own tax situation.”
Some critics contend that requiring sales taxes to be charged on all online purchases amounts to nothing more than a tax increase for consumers and a moneymaker to fill state coffers.
But Chaffetz doesn't want his newly introduced bill that attempts to resolve the issue of taxing online purchases to be seen as a tax hike intended to provide states with a revenue windfall. Such a description of the Remote Transactions Parity Act is "very dangerous. It is 'bumper-sticker' politics that is inaccurate and unfair," Chaffetz told the Deseret News and KSL editorial boards recently.
It's a states' rights bill. What this does is it empowers and allows those individual states to make those decisions. That's why, again, I would say passage of this is not a tax on the Internet.
–Jason Chaffetz, R-Utah
His bill is the latest attempt by Congress to resolve the issue of how to collect sales tax on out-of-state purchases as more and more consumers shop online. Currently, sellers only have to collect taxes in states where they have a physical presence.
Chaffetz said his bill promotes parity by requiring purchasers to pay sales taxes they already owe on online goods, just as they do when they shop at a brick and mortar store.
He said online sales are hurting small, locally owned mom-and-pop stores that are seeing customers come in only to get advice on purchases they plan to make from an Internet vendor that doesn't charge sales tax.
"What I believe in as a pretty hard-core conservative is there are certain principles that we think are important. One is parity," Chaffetz said. "If you're buying the exact same thing in the exact same spot, you should pay the tax."
Just what that tax adds up to, he said, would be left up to the states under his bill because the amount owed would be based on what the sales tax is in the place where the purchase is delivered.
"It's a states' rights bill," Chaffetz said. "What this does is it empowers and allows those individual states to make those decisions. That's why, again, I would say passage of this is not a tax on the Internet."
States without a sales tax would see no difference under the legislation, while others would see increased revenues. Still other states, including Utah, have already decided the additional tax collections should be rendered revenue neutral.
Under a 2013 law passed by the Utah Legislature, the state's 4.7 percent sales tax would automatically be reduced to compensate for additional money coming in as a result of congressional action on remote sales tax collections.
The Utah law's sponsor, Sen. Wayne Harper, R-Taylorsville, said there's only a 1.6 percent compliance rate among Utah taxpayers when it comes to reporting the sales tax they owe on online purchases on their state income tax returns.
The amount of money Utahns should be paying annually is somewhere between $80 million and $300 million, according to Sen. Curt Bramble, R-Provo, the incoming president of the National Conference of State Legislatures.
Both Harper and Bramble said action by Congress is needed to ensure Utahns pay what they already owe in sales taxes, the biggest source of revenue for the state's general fund, not fill government coffers.
"We're not looking for a windfall," Bramble said. "We are looking to shore up and stabilize the tax base that's been eroded."
Harper said he wants a "fair tax policy, fair tax treatment, for everybody."
Chaffetz said his bill has attracted the support of more than 600 entities, ranging from huge online companies such as Amazon.com and Overstock.com, to national organizations representing state and local officials.
In fact, Overstock.com has come out as a staunch supporter of Chaffetz’s bill as a method for simplifying the retail landscape in a way that can mutually benefit all merchants.
“We support a federal solution from Congress so long as it’s fair and workable,” said Overstock board chairman Jonathan Johnson, who has said he is considering a possible gubernatorial run. The Utah-based company recently sent a letter to Chaffetz expressing its backing of the measure as currently written.
Johnson said the bill creates a reasonable way for states to have merchants collect applicable sales taxes without undue burden. However, he noted that if the bill were altered significantly by Congress during the legislative process, then the company’s support could also be impacted.
The Utah Taxpayers Association recently endorsed the bill as "an important step forward in bringing tax fairness to retail competitors" in a letter to Chaffetz from association president Howard Stephenson, a state senator from Draper.
"We see this as an equity issue," the association's spokesman, Billy Hesterman, said. "We believe taxes should be spread equally among everyone."
But with more than 10,000 taxing jurisdictions nationwide, there are also critics of Chaffetz's "destination sourcing" standard for assessing taxes. Another option being talked about is charging taxes based on where a company is located.
Chaffetz said he came up with the bill because Utah leaders ranging from members of the state's GOP-dominated Legislature to Salt Lake City Mayor Ralph Becker, a Democrat and president of the National League of Cities, want the issue resolved.
"We're a very conservative state," Chaffetz said. "It's as bipartisan and as near-unanimous as I can possibly get. And that's what I'm supposed to do. I'm supposed to go fight for what my state and the people in my state want."
One of the state’s largest business advocacy organizations voiced support for tax policies that it believes “strengthen the Utah economy.”
“As purchases from remote sellers increase, the state’s failure to collect sales and use tax on out-of-state, remote purchases shrinks the collected sales tax and creates a financial burden on the state of Utah and its local governments,” said Justin Jones, vice president of public policy for the Salt Lake Chamber. “Increased revenues from collecting taxes that are due could be used to improve infrastructure, education and/or reduce the overall tax burden on Utahns.”
Sales and use tax policy should not create competitive advantages for either remote sellers or point-of-sale sellers, he said.
“We favor tax policies that properly balance tax simplicity, efficiency, fairness, revenue sufficiency and transparency,” Jones said. “States should maintain the authority to use state-level tax policy to improve economic efficiency. Federal action should not preclude fair, simple and transparent sales and use tax incentives.