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In our opinion: Online sales tax is more complicated than advocates have said

FILE: Gov. Gary Herbert talks about his annual budget proposal at the Utah Highway Patrol Salt Lake County headquarters in Murray on Wednesday, Dec. 7, 2016.
FILE: Gov. Gary Herbert talks about his annual budget proposal at the Utah Highway Patrol Salt Lake County headquarters in Murray on Wednesday, Dec. 7, 2016.
Kristin Murphy, Deseret News

The issue of whether governments should begin collecting sales taxes from internet transactions is more complicated than advocates have said. It also illustrates how ineffective the sales tax is becoming in a 21st century economy.

Advocates of an internet sales tax often tout the need for market fairness. But that’s an elusive concept, at best.

While brick and mortar stores face the sales tax burden, online merchants have the burden of shipping fees. Meanwhile, many big box stores have their own websites that compete with themselves directly. Some retailers even incentivize internet sales by providing online discounts on items they also sell in stores.

Studies show some people do indeed shop in stores, then order the items they see at a cheaper price online. Many other people shop online, then drive to a store to immediately buy the item they were viewing.

Gov. Gary Herbert recently said the state is losing $200 million per year because online shoppers are not paying sales taxes. That is an estimate. If the online price of products were to rise because of a sales tax, shoppers may not buy as much. No one can say for sure how much an online sales tax truly garners for the state.

In addition, requiring sales taxes for online purchases may slow the growth of an industry that is contributing greatly to Utah’s economy.

One may justify sales taxes on local purchases because such funds are necessary to cover the additional public service burden brick and mortar retailers place on local governments — police and fire protection, etc. If a Utah consumer pays a local sales tax for purchasing an item from another state, such justifications disappear.

The $200 million estimate is further complicated by Utah law, which requires money collected from such a tax to be placed in a restricted account, where lawmakers then could decide to accept it as a windfall or reduce the state’s sales tax rate to compensate for the extra money.

As advocates often note, state law also requires consumers to voluntarily pay taxes on remote transactions, but that has mostly proven to be an ineffective statute.

The state of Utah, however, has recently negotiated a deal with Amazon in which the retailer agreed to begin charging and collecting sales taxes on all purchases originating in Utah. Because this is a negotiated arrangement, it falls outside the law that restricts the use of online sales taxes and will go directly to state coffers.

Private companies are free to enter into any agreements they wish. This deal is one way the state can begin to make up for money it says it is losing. Our guess is a few other large internet sellers might be interested in signing similar agreements. Many smaller sellers, however, would not.

Utah Rep. Jason Chaffetz is a sponsor of the Remote Transactions Parity Act, which has yet to gain any traction in Congress. It would require online sellers above a certain size to collect sales taxes. It faces stiff opposition from several conservative groups, making its future uncertain.

This issue illustrates how the 21st-century economy may have innovated itself to a point where old tax structures no longer seem fair, effective or conducive to innovation.

In any case, simply extending sales taxes to online transactions does not satisfy the elusive need for fairness. A value-added tax or some other mechanism may provide a better solution.