Online sales tax could hit Utah companies

Published: Tuesday, Aug. 30 2011 11:00 p.m. MDT

Amy Brandt shops at The King's English Bookshop. Some feel Internet sales should be taxed like local stores.

Kristin Murphy, Kristin Murphy, Deseret News

SALT LAKE CITY — Traditional retailers are battling for real-world dollars against their virtual reality competitors.

So far the Internet has an advantage, but if some lawmakers in Washington, D.C., have their way, consumers would start paying sales tax on purchases made over the Internet no matter where they live, impacting Utah companies such as Overstock.com, 1-800 Contacts, Backcountry.com and Ancestry.com.

Betsy Burton, who owns Salt Lake City's The King's English Bookshop, couldn't be happier.

Burton and others who manage traditional "brick-and-mortar" physical stores claim Internet sellers get an unfair advantage by selling their goods without collecting sales tax.

"If an Internet company doesn't have to collect sales tax, then essentially, in Utah, we're operating at a 10 percent disadvantage," Burton said. "It isn't just the sales tax, it's also the money we pay our accountant and other (associated collection expenses)."

Each year, U.S. states generate sales tax revenue, money that funds public services, including roads and emergency responders. As more commerce moves online, state and federal government see web-based sales as an easy way to bring in more cash. This year, U.S. Sen. Dick Durbin (D-Ill.) and Rep. John Conyers (D-Mich.) introduced the Main Street Fairness Act, which would force states to collect taxes from online retailers. A Senate version of the bill is in the Senate Finance Committee. A House version has been referred to the Judiciary Committee. A timeline won't be announced until after Congress returns from recess on Sept. 6.

If a bill passes, that could mean losses for several Utah-headquartered companies.

Losses from not collecting state and local sales taxes from Internet purchases will expand from $8.6 billion in 2010 to $11.4 billion in 2012, according to a University of Tennessee study. For Utah, that would mean about $110 million in annual lost revenue. Last year, the state received $467,000 from 8,200 taxpayers who voluntarily reported sales tax they owed.

Overstock and Backcountry declined to comment on potential losses, but each said they would comply with the measure if it became law. Ancestry also declined to comment.

Any online retailer has to be flexible enough to "think on its feet" and adapt to the ever-changing e-commerce environment, said Marit Fischer, communications manager for Backcountry. If the tax passes, Backcountry will make whatever adjustments are necessary to remain competitive. The company is not forecasting any staffing cuts if the law changes, she added. At Backcounty, about 600 of its 700 employees work in Utah.

Level playing field

"The brick and mortar guy just wants to be treated the same," said Scott Hymas, chief executive officer of R.C. Willey Home Furnishings. "We don't mind competing against the Amazons or anybody, but it makes it very difficult when they don't have to collect sales tax."

The proposed legislation would "level the playing field" with Internet-based retailers, making physical store more competitive, Hymas said. "Tax the Internet guys, and then we'd all be treated fairly," he said.

Without a tax, small businesses get hurt because they can't compete on price, said Danny Diaz, spokesman for the Virginia-based Alliance for Main Street Fairness. If the Main Street Fairness Act passes, traditional stores could see some relief, he said.

Based on a 1992 U.S. Supreme Court ruling, online retailers are not required to collect sales taxes on purchases made in states where they do not have a physical presence. That leads Overstock to charge customers living in Utah sales tax but not customers in Washington, D.C., for example.

Nobody over time can operate at such a disadvantage, said Burton, the bookstore owner. "In the end, it will put all brick-and-mortars out of business and destroy our local economy in the process."

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