Tax system antiquated, chairman of Utah State Tax Commission tells Congress

WASHINGTON — The chairman of Utah State Tax Commission told Congress on Thursday that allowing states to tax only those businesses that have a physical presence within their boundaries doesn't make sense now because many sales are made via the Internet.

R. Bruce Johnson illustrated that headache for the states by talking about his two favorite bookstores: Sam Weller's on Salt Lake City's Main Street, and Amazon on the Internet.

"Does it make sense that Sam Weller's has to collect sales tax on the sales of books to me" because it has a physical store in Utah, "and Amazon doesn't have to" because it has no buildings there?

"Is economic presence appropriate, or is physical presence the appropriate test" to allow states to tax a company, he asked during a House Judiciary subcommittee hearing.

Testifying for the Federation of Tax administrators, Johnson said, "Suffice it to say that the economy of the 21st century is electronic and borderless. Most multi-state businesses can and do operate anywhere and anytime without the encumbrance of physical presence." He said many online businesses may impact a state's economy more than those with a physical presence.

He added that is why "requiring a physical presence to justify taxation is not appropriate in the new millennium for either sales taxes or income taxes."

Bills have been introduced in the past, but not so far during this Congress, that would supersede Supreme Court decisions and allow states to tax businesses that do not have a physical presence in their boundaries. The subcommittee on Thursday was exploring a wide range of possibilities on what should be allowed.

Johnson urged Congress in general to empower states to decide for themselves how to tax businesses operating there.

"What the states seek, therefore, can be stated simply: a balanced federal policy that may prohibit discriminatory or unfair taxes on interstate commerce, but clearly allows states to require interstate businesses to pay their fair share," he said.

This story was reported from Salt Lake City.

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