Recent news that our own Representative Jason Chaffetz is now working on a federal fix to close the online sales tax loophole put many a Utah small-business owner’s mind at ease. Given his track record and longstanding support of small businesses, we are hopeful that he can work with his colleagues in Congress to finally pass e-fairness legislation. However, there are some in Congress attempting to derail the conversation by introducing a seriously flawed alternative to e-fairness: origin-based sourcing.
First, let’s cover the matter of e-fairness: the simple belief that all retailers should be held to the same set of laws and requirements. Specifically, e-fairness supporters nationwide are calling on Congress to pass legislation that allows states to require online retailers doing business within their borders to collect and remit the state’s sales tax.
It’s a matter of fairness, plain and simple; if local Utah businesses must collect this tax day in and day out, all businesses should have to. Otherwise, the government is just picking winners and losers — with Utah businesses squarely in the latter category.
Despite holding 30 hearings on the issue in the past 20 years, Congress has yet to solve this matter. While the Senate passed e-fairness legislation with nearly 70 votes. That’s where Representative Chaffetz has been instrumental in crafting a solution the House of Representatives can support, calling it exactly what it is: a matter of states’ rights. In the House Judiciary Committee, Representative Chaffetz has been working closely with his colleagues to come up with a compromise that everyone can support.
As they have been negotiating this admittedly complicated issue, some have brought up origin-based sourcing as some sort of cure-all for this issue, when in reality, it would introduce more problems than it would solve.
Origin-based sourcing is the idea that the sales tax rate on a particular item should be determined by the seller’s location. Sounds simple, but when you apply that logic to online shopping, the whole concept begins to unravel. Under origin-based sourcing, a Utahan purchasing a product online from a seller located in New York would then have to pay the New York State sales tax — and I don’t know many people in our state who want their money going to support New York’s policies.
Even worse, this is the very definition of “taxation without representation.” Origin-based sourcing to determine sales taxes means your tax money doesn’t go back to your community, city or state — it goes across state lines to fund services you’ll never use. This approach would also mean your money would go to local and state governments in which you are not able to vote, thus giving you absolutely no representation. In what world does this even come close to making sense?
Origin-based sourcing could also create tax havens in states without sales taxes that could then just be used by larger online retail giants to maintain their current advantage over local retailers. All it takes is moving a regional office or establishing a P.O. box in one of these states, and once again, the playing field remains unlevel.
I am hopeful Representative Chaffetz will continue to work with his colleagues in the House to craft legislation that closes the online sales tax loophole without making us all taxpayers in 45 states. It’s time for Congress to abandon the notion of origin-based sourcing and pass e-fairness once and for all.
Jason Lang is a business owner in Draper.
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