The U.S. Supreme Court was wise to allow states to create more taxation fairness between online retailers and brick and mortar retailers.
Last month, the court ruled that states can require internet retailers to collect sales taxes, including in states where they have no physical presence. Some online retailers, like Amazon, were already voluntarily collecting sales taxes and remitting the tax revenue to the state.
Brick and mortar retailers have long complained that it is unfair for them to collect and remit sales taxes while many of their online competitors do not. It is becoming an even bigger issue because more and more retail sales are moving online. Numerous traditional retailers have gone out of business or are struggling.
Extending sales tax collection to online sales will actually not be a new tax. The law already requires consumers to pay taxes on online sales, but few people do so. Retailers with a presence in a state are required to collect sales taxes and remit them to the state, but out-of-state internet retailers have not been required to collect the taxes.
It’s also important to maintain Utah’s diversified tax structure, balanced between sales taxes, income taxes and property taxes. The best tax structure keeps tax rates low, with revenue derived from a broad and balanced tax base.
With sales of services, which are not taxed, constituting a larger and larger share of the economy as compared to retail sales, the sales tax base has been shrinking. So including online sales in the tax base will help maintain a balanced tax system. At some point, the Legislature might also need to consider taxing some services and eliminating some exemptions to preserve the sales tax base.
The Utah Legislature will need to meet to enact online sales tax collections in Utah and to establish appropriate rules. While Utah has many taxing jurisdictions, uniformity and technology solutions will allow online retailers to efficiently collect and remit the taxes. It would make sense for the governor and Legislature to consider holding a special session to get the process started.
Collecting sales taxes on most online retailers is estimated by the Governor’s Office of Management & Budget to bring in an additional $50 million to $75 million in state revenue. Existing law will require some of that revenue be used to reduce taxes on manufacturers, and some will provide an overall sales tax rate reduction.
There had been discussion previously about some of the new sales tax revenue being used to increase funding for education. However, recent estimates indicate the amount available for education will be relatively small. It won’t come close to replacing a 10-cents-a-gallon fuel tax increase that is proposed to fund education.
The fuel tax is estimated to bring in some $180 million for transportation. A large share of that money, about $120 million, could replace general fund money that is currently dedicated to transportation. The general fund money, in turn, could then be used to boost education funding. Local governments would receive the balance of the fuel tax money to be used for city and county roads, many of which are in poor shape.13 comments on this story
This restructuring of the tax system would improve Utah’s tax balance while also providing much-needed funding for local schools. Transportation would be funded more from the fuel tax “user fee,” although a generous amount of general fund money would still go to transportation. Local roads would also receive a necessary increase in funding.
The Legislature has placed the fuel tax question on the November ballot this year for a non-binding vote. If citizens express support for more education funding by voting in favor of the proposal, it will send a strong signal to the Legislature.
A. Scott Anderson is CEO and president of Zions Bank and a volunteer leader of the Our Schools Now school funding initiative.