Utah’s Controversial Sales Tax Bill

House Bill 300 was signed into law in Utah recently. This law gives 18% of sales tax collected in a purchase to the seller. The state has decided that remote sellers need to be incentivized with state funds to collect sales tax. The law goes into effect on January 1, 2014 and might change the way many remote sellers do business in Utah. Will it be able to attract the attention of remote sellers and increase revenue for the state? If you put it into layman’s terms, Utah residents who purchase online are subsidizing whatever remote business they’re purchasing from, sending Utah tax dollars to wherever that online business is in the world.

For instance, if a Utah resident who lives in Salt Lake City buys a $50 item online and that remote seller collects sales tax, the resident will pay a 4.7% state sales tax and a 2.15% local tax. The sales tax total on a $50 purchase comes to $3.43. The House Bill stipulates that all sales tax remitted to the Utah Tax Commission is subject to the 18% deal for remote sellers. Since Utah’s Tax Commission administers local taxes, the remote seller can keep $0.62. This seems like a small amount on a single transaction, but it can add up. So will remote sellers bite? It depends on their ability to collect sales and volume of sales. If a remote seller does little business in Utah, doesn’t collect sales tax anywhere else in the country, and would have to start from scratch to start processing sales tax, it’s unlikely they will.

For big name remote retailers who have systems set up, this could be an opportunity to grab some cash and undercut Main Street even more. Amazon is one of these remote sellers, for example. On top of already undercutting Main Street businesses because of reduced overhead, remote sellers like Amazon could still comply, get a portion of the 18%, and undercut on prices. For instance, an item priced at $50 will be $53.43 on Main Street including sales tax, if they could manage the same base price as Amazon. Amazon could charge a total lower than $53.43 by reducing the base price, subsidized by the 18% they get to pocket, and still come out on top for sales tax. They could, for example, make the item $49.38, charge $3.38 in sales tax for a total of $52.76, and keep $0.01 of sales tax after putting the rest of the 18% towards lowering the price. Remote sellers like Amazon then get to comply with sales tax and avoid costly legal battles over grey areas in nexus and make a bigger profit. While that involves a lot of tricky math and patience, remote sellers looking to make more money might take Utah up on their deal.

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