While some have argued that HB235, the Remote Transactions Parity Act, is Utah’s Legislature looking to enact a new tax, that simply is not true. This legislation is the government reacting to a changing market; it is not the government looking to raise taxes on Utahns.
Traditionally, purchases have been made at a store made of bricks and mortar, but today’s marketplace has changed. Consumers now are purchasing from any location on laptops, cellphones or tablets. Some of those purchases may have had a sales and use tax collected. However, most transactions that are made with a retailer that has no physical presence in Utah, such as a store or an office, are not collecting and remitting the sales and use tax that should have been collected with the transactions they administer.
If an out-of-state online retailer does not collect the sales and use tax, then by law the burden falls on the purchaser to pay the tax. Most Utahns are unaware of this requirement. So much so that the state has only collected around $200,000 in taxes related to online purchases in recent years.
HB235 attempts to correct this issue. The bill creates a process where online retailers who use “affiliates” that live in Utah to drive business to their website obtain nexus, or a presence within the state. That nexus would require those online retailers to collect and remit the sales and use tax on purchases made by Utahns. It does not increase the sales and use tax — it simply ensures Utahns won’t have to figure out how much to pay on their individual income tax filing each year because the retailer will have collected the tax. Just as it has been handled when a purchase is made in a physical store.
Utahns are honest, hardworking and want to play by the rules. This is not a state where citizens want to evade their taxes. It is a state that wants to lower its tax rates and this bill will do that. Rep. Mike McKell, R-Spanish Fork, and Sen. Curt Bramble, R-Provo, are working to ensure that this bill follows the sound tax policy of broadening the base and lowering the rate. That is to say as more taxes are collected from online purchases the state’s overall sales tax rate will drop to ensure the change in how the tax is collected is neutral on the state budget.
This revenue neutrality component of the bill is crucial for Utah taxpayers. In 2015, the Utah Legislature approved more than $150 million in tax increases when it passed a statewide $75 million property tax increase and a $75 million gas tax increase. Taxpayers also saw other increases in taxes from counties, cities and school districts increasing taxes.
Utahns do not need another tax increase, but the state should make sure everyone can adapt to how purchasing behaviors are shifting from the physical store to the online retailer.
To protect small businesses and individual sellers, the Legislature should include a small sellers exemption in this legislation. While asking all retailers to collect and remit the sales and use tax is fair, it would be too burdensome to ask individuals who do a small amount of business online to deal with the process of collecting and remitting the proper tax.
Critics of McKell and Bramble’s proposal have said this issue should be solved at the federal level, and their argument has merit. Congress should find a national solution to the evolving retail market and find a way to allow for all purchasers to easily comply with the sales and use tax.
Unfortunately, Congress has failed to act and the result has left an uneven playing field among in-state and out-of-state retailers and a confusing process for Utahns to comply with the tax. Without a congressional solution, the states are left to figure this out on their own.
That is what McKell and Bramble are doing. They are putting forward a solution that does not increase taxes or create a new tax, and a solution that allows for a level playing field among all retailers. This bill also makes it easier for the taxpayer to comply with existing law. Utah’s lawmakers should pass HB235.
Billy Hesterman is the vice president of the Utah Taxpayers Association.