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Legislators advanced two bills Wednesday seeking to force more online retailers to collect sales tax and remit it to the state while several conservative and business groups called the move "constitutionally suspect and practically unwise."
SB182 by Sen. Wayne Harper, R-Taylorsville, was endorsed unanimously by the Senate Revenue and Taxation Committee, while HB235 by Rep. Mike McKell, R-Spanish Fork, advanced on an 8-5 vote in by the House Revenue and Taxation committee. They now go to the full Senate and House, respectively.
Currently, merchants selling products online must collect sales tax only if they have a physical location such as a store or warehouse within the state where the purchase is made.
The bills would expand that to force collection if an online seller has Utah affiliates, including website owners or others in social media where a buyer can click on an ad and be connected to the online seller.
Even when tax is not automatically collected, Utah buyers still now technically owe it and are supposed to include it in their annual income-tax returns. Utah collects only about $200,000 a year, out of an estimated $80 million to $350 million owed.
Sen. Lyle Hillyard, R-Logan, said the uncollected tax is hurting the state's general fund, which primarily comes from the state's portion of sales tax.
Harper said it also puts bricks-and-mortar retailers at an unfair disadvantage, and argues that computer programs are available that could help online retailers easily figure and collect tax nationwide.
Harper said he wants to ensure that "every transaction, every taxpayer, every product is treated the same regardless of how or where you buy it."
Sen. Jim Dabakis, D-Salt Lake City, said currently, "Our brick and mortar facilities are fighting with one hand tied behind their back. This is wrong. It is morally reprehensible."
But Evelyn Everton, Utah director of Americans for Prosperity, said a coalition of 20 national conservative groups oppose the Utah bills, including FreedomWorks, the National Taxpayers Union and Americans for Tax Reform.
The bills would force businesses outside the state to collect taxes for Utah, which she says amounts to taxation without representation.
"It's not a matter of fairness. It's just a matter of getting more money from taxpayers," she said. "Utahns are taxed enough."
McKell, however, notes that Utah law already requires that if the state is successful in better collecting online sales tax, it must lower its overall rates so they generate the same amount as before so the move is revenue neutral. But it could stabilize revenue over time to reduce current losses from online sales.
McKell added that taxes from online sales are already owed. "This absolutely is not a new tax." He said his bill is constitutional because it is patterned on one New York passed, and the U.S. Supreme Court refused to hear a challenge against it.
Several businesses said it would be wiser for Congress to enact a nationwide solution, instead of states passing different rules.
Senate President Wayne Niederhauser, R-Sandy, said states would also like to see Congress act, but have been waiting for that for a decade. "I have no faith they [members of Congress] are going to do it," he said, "So the states are going to act."
Gary Thorup, an attorney for eBay, which already collects tax in Utah because of operations here, said SB182 could hurt other Utah businesses. He said large companies such as Amazon would simply sever relationships with Utah affiliates to avoid collecting tax in the state.
Mark Griffin, representing Overstock.com, complained HB235 has exceptions that may help his firm's competitors such as eBay and Google. "This bill is not for equality and doesn't level the playing field."