SALT LAKE CITY — An effort to force online retailers to follow the same tax collection rules as brick-and-mortar shops squeaked through the Utah Senate this week.
The issue drew sharp debate among senators who feared such a law would put Internet businesses at a competitive disadvantage and those who argued that the current playing field is uneven.
SB226 basically would require retailers who do not have a physical presence in the state, such as a shop or store, to pay or collect and remit state and local sales and use taxes if those retailers have business relationships with a seller who does have a physical presence in the state.
The bill would place Utah in a group of 24 other states that are trying to force out-of-state firms to pay state sales tax.
The Senate narrowly approved the measure 15-12. It now goes to the House for consideration.
Congress apparently intends to take up the Internet sales tax issue, but Sen. Wayne Harper, R-Taylorsville, said Utah can't wait on Washington.
"We need to do something to maintain control of our own tax policy," said Harper, the bill's sponsor.
Legislative attorneys say the measure raises questions under the commerce clause of the Constitution because it imposes obligations on out-of-state sellers who do not have a physical presence in Utah.
"Utah will get sued if we pass this bill," Sen. Todd Weiler, R-Woods Cross, warned.
Utah-based Overstock.com, an online retailer that currently pays Utah sales tax on its purchases, strongly opposes the bill because it would put Overstock.com at a disadvantage in other states. The company has threatened to file a lawsuit if the measure becomes law.
Weiler also said the law would not go over well with Utahns.
"The public will see this as a tax increase," he said. "We will be branded as having raised taxes."
The Legislature's fiscal analysts say the bill would bring an additional $550,000 to the state in 2014. Businesses that would be subject to the law that are not currently required to pay or collect and remit sales and use taxes would pay about $785,000 more annually, according to the fiscal analysts.
Senators who oppose the bill contend it will have a chilling effect on the state's business-friendly image.
"At this point, this bill is an economy killer," said Sen. Stephen Urquhart, R-St. George.
Sen. Curt Bramble, R-Provo, said the state needs to find a way to collect taxes from remote sales. The bill aims to remove the advantage online retailers have by not collecting or remitting sales tax. It doesn't solve the problem, but it's a step in the right direction, he said.
Utah businesses of various sizes support the bill.
Scott Hymas, CEO of Utah-based furniture chain RC Willey, testified in favor of SB226 last week, noting that businesses that collect sales tax contribute to the overall well being of the state.
“If the current tax loophole remains in place, online-only sales companies will continue to have an unfair advantage in the sales collection process, reducing the amount of tax money that goes to educate our children, pay for our needed services, and potentially reduce other taxes,” Hymas said. “The time has come to level the playing field for all retailers.”