This is an archived article that was published on sltrib.com in 2017, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.
Utah's Gov. Gary Herbert and other internet tax proponents proclaim Utah's uncollected e-commerce sales tax has reached $200 million a year. It's a large number. And it's largely wrong.
Supposedly, the shortfall results from out-of-state e-commerce retailers not collecting Utah sales taxes. But is $200 million the number right? It doesn't seem to add up.
Here's a back-of-the-envelope calculation of all 2016 e-commerce sales taxes due in Utah:
• The 2016 total U.S. retail e-commerce is $392 billion (estimates from Internet Retailer and eMarketer).
• Utah's e-commerce visit share is 0.84 percent, based on the assumption e-commerce sales are proportionate to visits (Source: Hitwise and Connexity); coincidentally, that figure approximates Utah's population proportion of about 0.9 percent.
• The average Utah sales tax rate is 6.53 percent (https://www.salestaxhandbook.com/utah).
• Therefore, Utah's total e-commerce sales tax due collected or not would be $215 million: ($392 billion x .0084) x 0.0653 = $215 million.
If this calculation is correct, then either Utah is not collecting more than 90 percent of its e-commerce sales taxes, or the governor's $200 million figure is wrong.
Internet tax proponents use the governor's $200 million figure to advance more internet taxation in the upcoming legislative session, even though Utah now likely collects sales tax on most Utah e-commerce transactions.
While some smaller, out-of-state companies don't collect Utah sales tax, the largest e-commerce companies do because they have physical presence in Utah (e.g., Overstock, Jet, eBay, Wayfair, Backcountry, Rakuten, Bed Bath & Beyond, Walmart, etc.). The big holdout was Amazon. But now that Amazon which accounts for about 21 percent of e-commerce nationally collects tax in Utah, any remaining uncollected amount is likely a rounding error in the governor's $14.8 billion budget.
So, how could the governor's $200 million figure be so far off? Simple: It's based on old data and bad assumptions.
With a little digging you will find his figure comes from a 2014 report, based on a 2009 study from the University of Tennessee. That's right: 2009. And not only is the 2009 Tennessee study out-of-date, many questioned its accuracy when it was first published. Unfortunately, those questions didn't stop internet tax proponents from embracing its large loss projections.
Five years later, in 2014 the National Council of State Legislatures issued a report based on the suspect 2009 study, goosing its numbers upward with growth multipliers, to bring the numbers "current." NCSL pegged Utah's 2014 shortfall at $180 million.
The governor adds a few more multipliers since 2014 and gets it to $200 million $200 million, derived from a 2014 report, which is derived from a suspect 2009 report without someone asking whether e-commerce has changed in the intervening eight years.
Has e-commerce changed? Yes, dramatically. As one in the e-commerce trenches, I can assure you eight years is several lifetimes in this industry.
So, let's suppose that the 2009 Tennessee study had made a small few errors, but that maybe these errors or faulty assumptions only resulted in its being off by a few degrees. Let's say, for example, that it might have failed to forecast the recent rise of big box e-tailers, like Walmart.com, BestBuy.com and a host of others, who already collect taxes here. Even though the calculation errors in 2009 might have been small at that time, what then happens when you just add multipliers and miss all the important market shifts from 2009 to 2017? This happens: Small errors become big.
It's strange to me the media has never given the governor's $200 million figure a good scrub to see if some of those hundreds of millions might easily come off in a little soapy water.
It's also strange that with all the resources at his command the governor has not commissioned a serious, Utah-specific study. Maybe that would yield an inconvenient truth.
I say, Utah should conduct a serious up-to-date study, notwithstanding the possibility the loss figure might be much less than $200 million particularly since the recent Amazon deal means whatever the shortfall was, it is now likely 21 percent less.
Here's another idea taxpayers should agree with: Rather than propose new internet sales tax legislation based on the unscrubbed $200 million figure, Utah legislators should follow through on past promises to reduce the sales tax rate commensurate with new sales taxes now collected by out-of-state retailers like Amazon.
Legislators should sponsor such a bill in the upcoming session. It keeps faith with past promises. Failing to do so effectively means that whatever millions Utah collects on Amazon sales drop straight into the state's wallet as a kind of governmental windfall on top of the taxes Utah citizens already pay.
Seems like some sales tax relief is in order. There's legislation we can all get behind!
Jonathan Johnson is the chairman of the board of Utah-based Overstock.com and a former gubernatorial candidate in Utah.