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For more than a decade, one Utah lawmaker has wrestled with the dilemma of how to collect tax from online sales. Utah residents are required to self-report and remit their uncollected sales tax on their annual state tax returns. However, few do because there is no enforcement mechanism.

Rep. Wayne Harper, R-West Jordan, met recently with members of the Alliance for Main Street Fairness on Utah's Capitol Hill to discuss the progress of legislation at the federal level and two bills that he hopes to get through Utah's Legislature.

Brick-and-mortar businesses generally contend that the fact they must collect a sales tax puts them at a competitive disadvantage with online retailers who don't.

Of the three bills pending in Congress, Harper said he favors the bipartisan Marketplace Fairness Act sponsored by Sens. Dick Durbin, D-Ill.; Michael Enzi, R-Wyo.; and Lamar Alexander, R-Tenn., which would require out-of-state retailers to collect online sales tax at the time of purchase. Utah residents are supposed to pay sales tax for online purchases from companies that have a physical location within the state.

Web retailers such as, eBay and contend that the notion of collecting sales tax in so many different states and municipalities grows complex and burdensome because of the many variations in tax policies throughout the country.

At the state level, Harper has two unnumbered bills. One would require sales tax notification during the online purchase process, while the other would require all retailers with a physical presence in Utah to charge sales tax for online purchases made in the state.

Harper said that eBay, and other retailers that oppose such legislation have recently asked him to back off. "We've been having lots of dialogue. I've been helping them to understand the fact that there's a slight difference between a store that hires their neighbors and pays the property tax to fund schools versus somebody in another state that has a competitive tax advantage."

Although his bills fall short of a broad federal solution, Harper said he's been working on the issue long enough that he wants to either "do this in the next 12 months or things are maybe going to fold up and go away."

David Davis, president of the Utah Retail Merchants Association and the Utah Food Industry Association, said that online sales tax is a key issue for his members.

"We represent big national [retailers], as well as small mom-and-pop" operations, Davis said. "However, at this point, all are competing on this unlevel playing field."

Charles Evans, representing the Alliance for Main Street Fairness, said the Marketplace Fairness act would protect local businesses that have slim markups on the merchandise they sell.

"If you're starting out with a six, seven percent handicap — in some states its 11 to 12 percent — its even harder to compete," Evans said, noting that large online retailers also enjoy a volume discount "inherent in their business model."

The act would allow a tax exemption for smaller Web retailers with sales of less than $500,000 annually, Evans said.

Andy Stephenson, who also represents the Alliance, said that the proposed state legislation could serve as a patch but that federal legislation is "the right solution to solve this problem."

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