Thursday, October 25, 2012

Main Street Fairness, March 2012

The following is from an article I submitted to the Spectrum Newspaper in March of 2012. The Internet has changed all of our lives. From E-mail to Facebook to the Wikipedia we now access a variety of information in a whole different way. It has also changed the way we shop. I think we can all admit to shopping from the couch in pajamas! As Internet retail has evolved and grown, the problem of how to collect sales tax on the online purchases has also grown. Right now an online retailer that also has a physical retail presence in the State must collect and remit sales tax just as brick and mortar retailers do. An example of this might be buying a book from www.barnesandnoble.com. Since there are brick and mortar Barnes and Noble stores in the State, the online retailer will collect and remit the sales tax on a purchase. However, online retailers without a physical presence can pass the burden for remitting sales tax back to the purchaser who then must remit the tax on their annual State tax return. Unfortunately, the Utah State Tax Commission reports that less than 1% of Utahns file any sales and use tax on their tax returns. Yet, the percentage of Utahns making purchases on-line where sales and use tax is not collected is likely much higher than 1% percent, especially for generations X and Y. Many Utahns are not even aware they owe tax on these online purchases. This difference in tax burden from brick and mortar retailers to online retailers without nexus is significant. Since online retailers don’t collect sales tax on their products, they are able to offer products for about 7% less. It isn’t that the product is really 7% less; it is the difference between a tax being collected and a tax not being collected. The impact on our local retailers is significant, but so to is the impact to the State. A 2011 Janney Capital Markets’ study estimated that Utah misses out on $180 million each year in online sales tax. This is a growing sales segment as more and more people conduct purchases on-line. Compounding this issue is the problem that some online retailers are engaged in a deliberate shell game of hiding manufacturing, service or distribution centers in separate holding companies in order to avoid the sales tax collection. This session a bill has been proposed that seeks to address this online sales issue and close the loophole of what constitutes physical presence. HB 384 would provide for an expanded definition of nexus for online retailers. This is just the first step toward market equity on the issue of sales tax for online and brick and mortar retailers, but it is an important first step. The shell game must stop. As the Legislature evaluates this bill we will consider the needs of all retailers and the sales tax principles regarding fairness to Utah’s retailers. Government should not be in the business of picking winners and losers when it comes to tax policy.

No comments:

Post a Comment