Update: This story has been updated to reflect that following negotiations with state officials, Amazon did not take an incentive deal to keep 18 percent, and instead will keep just 1.31 percent of sales taxes it collects from Utah customers.
SALT LAKE CITY — Amazon.com is entitled to keep 18 percent of sales taxes collected in Utah under the terms of a confidential agreement with the state, the Deseret News has learned.
That's much more than the 1.31 percent of sales taxes most companies that sell to Utah customers are allowed to retain as a discount for filing their returns on time with the Utah State Tax Commission.
But the deal between the state and the online retailer apparently falls under a 2013 law that boosts the discount to 18 percent as an incentive for companies like Amazon that aren't required to collect sales taxes in Utah to voluntarily start doing so.
On Friday, officials said the state negotiated a deal with Amazon.com that does not include the incentive that would have allowed the online retailer to keep 18 percent of the revenue. As part of those negotiations, Amazon will keep just 1.31 percent of sales taxes it collects from Utah customers.
The details of those negotiations have not been released.
According to a just-updated study for the American Booksellers Association, Amazon sold nearly $428 million worth of retail goods in Utah in 2015 but did not have to pay $28.6 million in sales taxes.
That's because Amazon has no physical presence in Utah and states don't have the authority to force companies without that connection to charge their customers sales taxes.
In Utah, the unpaid state sales taxes on online purchases made by residents are estimated to add up to $200 million annually. Another $100 million in local sales taxes also go uncollected each year.
Utah State Tax Commission Chairman John Valentine said he could not provide details about the agreement with Amazon, including what incentives the company received.
"Amazon didn't get anything more favorable or less favorable than other vendors similarly situated," Valentine said. "They got the same thing everyone else got. … No more, no less."
Rep. Steve Eliason, R-Sandy, the sponsor of the legislation creating the incentive, said it has already brought in a sizable amount of sales taxes from other companies that have signed confidential voluntary compliance agreements.
"To my knowledge, we're the only state in the nation that does this. I'm quite proud of it," Eliason said Thursday, noting Utahns already are supposed to be paying sales taxes on online purchases that aren't collected by the seller.
But few Utahns comply by reporting the amount they owe on their state income tax returns. He said the incentive was meant to be extended to any company agreeing to begin collecting sales tax, to make it easier for taxpayers.
"This is not a new tax and it's not a tax increase. It is simply a method to collect taxes that are owed by taxpayers. We're not raising the sales tax rate. We're not changing what's taxable."
Valentine said similar agreements have been signed over the years, but the incentive "made our job easier. Instead of a stick, we have a carrot."
He said the Utah State Tax Commission actively seeks out online companies to offer the incentive.
Having Amazon on board "is an important component because there are so many other online retailers that look to Amazon as a leader," Valentine said, which could lead to more agreements.
Gov. Gary Herbert announced Wednesday during a discussion of his proposed $16.1 billion budget with the Deseret News and KSL editorial boards that an agreement had been reached with Amazon.
Few details have been made public, other than the retailer will begin collecting sales taxes from Utah buyers on Jan. 1 on purchases made directly from the company, not from a third party.
The governor called for "aggressively" going after lost sales tax revenue in his budget and is putting together a task force of business leaders and educators to review state tax policy.
Paul Edwards, a deputy chief of staff to the governor, said although the details of the agreement are confidential, he is confident it was negotiated in "good faith within the contours of the use tax law. No one is hiding that law."
Edwards said that law provides for what he termed a rebate.
"It's not like there's some private deal being brokered here," he said. "It's not as though there's some privilege beyond what the law allows."
Herbert would prefer Congress pass a law settling the issue, Edwards said.
"While we appreciate companies that don't have a nexus in the state entering into these voluntary collection agreements, this is still just a piecemeal approach and it would be best to have a comprehensive federal solution to the issue," he said.
Utah Retail Merchants Association President Dave Davis said the Amazon agreement is a big deal to the retailers he represents around the state, ranging from mom-and-pop operations to department stores and supermarket chains.
"This puts them on a level playing field," Davis said, since all have to collect sales taxes. "It was kind of an early Christmas present for my brick-and-mortar retailers. … Amazon is the 800-pound gorilla of the online marketplace."
Ethan Allen, owner of Allen's Camera, said Amazon is his biggest competition.
Allen said he's losing about three sales a day to the online retailer, a situation that could change once Amazon starts collecting sales tax.
"I have someone that says, 'Hey, I can buy this on Amazon and save $300 on sales tax.' And I'm like, 'Well, technically you are actually required to pay the sales tax although no one does.' So I try to make that case," Allen said.
Betsy Burton, co-owner and co-founder of the King's English Bookshop and the president of the American Booksellers Association, said the agreement is good for Utah businesses, but she believes Amazon still hurts the state.
The association's study estimated that Amazon's sales in Utah represent the equivalent of nearly 300 retail storefronts and more than 2,500 retail jobs and the combined loss of sales and property taxes costs each household nearly $35.
"It isn't just about sales tax. Sales tax is actually a very small part of the money they remove from our community," Burton said. "We're honestly not whining. We care passionately about our community."
Contributing: Ladd Egan