Utah is considering legislation that would mandate out-of-state online retailers to collect Utah sales taxes or obtain a license to continue selling their products in the state.
Utah state Sen. Curt Bramble, R-Provo, the incoming president of the National Conference of State Legislatures, supports bill, arguing that online retailers should have to collect the same taxes as bricks-and-mortar retailers.
“Utah was one of the first states to push this movement beginning in the late 1990s,” Bramble told KSL TV. “The position from legislators across the country, from governors, from counties, from cities is 15 years of [dialogue] on the issue and 20 months being in a committee, is long enough to have had a [dialogue] on it.”
A hearing on the Utah bill will take place today, and critics are lining up to fight the measure.
Opponents of an Internet sales tax call the legislation unconstitutional, arguing that states don’t have authority to demand taxes from a business lacking a physical presence in the state.
Steve DelBianco, executive director of NetChoice, wrote in a letter to Utah state Sen. Deidre Henderson, R-Spanish Fork, that while he understands the need for states to collect revenue, this bill won’t accomplish that—and is unlikely to survive legal challenges.
“The U.S. Supreme Court has long held that states cannot impose tax obligations on a business that lacks the necessary connections to that state. That necessary connection now means a physical presence,” DelBianco wrote, citing the 1992 Quill v. North Dakota decision.
“The duty of out-of-state businesses with no physical presence in Utah to register and obtain licensing with the Utah tax commission is likewise unconstitutional,” he added.
>>> Commentary: Why Internet Sales Tax Is Bad for Everyone
In an interview with The Daily Signal, NetChoice policy counsel Carl Szabo said supporters of the federal Marketplace Fairness Act are using a state-based strategy because their Internet sales tax legislation isn’t gaining any traction in Congress.
“Utah’s bill is one such effort,” Szabo said. “This bill operates as a scorched-earth maneuver that’s unlikely to capture new revenue and will likely impose costs for Utah to fight an unwinnable lawsuit over its constitutionality.”
Bramble, the bill’s sponsor, said he supports the bill because of “gridlock in Washington.” He argues states should be able to set their own tax rules.
“With broad and bipartisan support, including many conservative Republicans, the Senate [in 2013] passed the Marketplace Fairness Act, which would allow states to collect already-owed Internet and remote sales taxes from online businesses. The bill aims to establish a fair and level playing field on which all businesses can compete, while restoring powers back to state governments what was stripped through an antiquated court decision more than 20 years ago,” Bramble wrote in Utah’s Daily Herald.
However, Heritage Foundation tax policy expert Curtis Dubay said that’s not the case and the Utah bill is a misguided approach.
“Online sales taxes are an issue for Congress to decide, as determined by the Supreme Court in its Quill decision. States shouldn’t try to solve the issue on their own. Congress is working slowly and methodically because this is a difficult problem to resolve,” Dubay told The Daily Signal.
