Utah’s online sales tax decision worries Park City e-commerce businesses
Utahns who regularly fill their online shopping carts with goods are about to have some sticker shock.
The state Legislature recently passed a law that will require businesses to charge sales taxes on goods purchased online in Utah. While Park City brick-and-mortar shops, long concerned about what they perceived as an uneven playing field, rejoice, many online businesses say complying with the tax laws could be a headache. Some worry that, if other states follow suit, it could have rippling negative effects for smaller e-commerce retailers.
Utah’s decision came one month after the U.S. Supreme Court ruled that states can decide to collect sales taxes on online purchases, even from companies that have no physical presence in the state. Previously, companies had to have a physical presence in a state for the state to collect the taxes. In Utah, residents were required to report and pay taxes on all online goods, but officials have said that most people did not comply with that law.
The new law, S.B. 2001, was signed by Gov. Gary Herbert on July 21 and is expected to go into effect on Jan. 1. Companies that make fewer than 200 sales annually or generate less than $100,000 in revenue will not have to collect the online tax.
Park City resident Kevin Williams is the founding partner of the marketing and product development group, RGK Innovations. One of the company’s businesses, which sells a water-powered cleaning tool called the Brush Hero, already collects and remits sales taxes in 26 states, he said. At first sight, the new law does not appear to affect his business.
But Williams worries that, if all states that charge sales taxes decide to require companies to collect taxes from online purchases, it could put a burden on small companies struggling to navigate the ins and outs of each state’s laws.
“There is such a myriad of different tax laws and regulations out there that staying on top of it and, worse, actually filing in all of these states could cost companies $250,000,” he said. “It is just a nightmare.”
Bill Malone, president and CEO of the Park City Chamber/Bureau, agreed that it could be a challenge for small startup businesses that sell products around the country to figure out tax rates and remit the money to other jurisdictions. Shawn Bercuson, founder of Park City-based Finnbin Baby Box Company, said that filing taxes in several different states will most likely increase his accounting costs. Like Williams, he worries how that could affect businesses with small budgets and staffs.
Williams fears that many e-commerce shops would not be able to comply because of their limitations.
“It’s going to limit the number of small entrepreneurs that can be a part of the e-commerce community,” he said. “It will place large administrative burdens on small companies and make it harder for them to operate legally.”
Instead of targeting online mom-and-pop shops, he hopes that states focus on foreign companies that sell knock-off products and third-party sellers on Amazon.
Amazon began charging Utahns online sales taxes in January of 2017, but Utah does not have a way to ensure taxes are being recouped on all Amazon sales, particularly ones involving third-party sellers who use Amazon as a type of marketplace. State Sen. Curtis Bramble (R-Provo), who sponsored S.B. 2001, admitted that it is difficult to track all of the purchases made on the e-commerce site.
But he is happy to have made a step toward “leveling the playing field” between online marketplaces and brick-and-mortar stores. He said he has vied for the change over the last two decades.
“We don’t want customers walking into a Best Buy demoing products and then sitting there in Best Buy ordering online and not paying sales tax,” he said.
Sue Fassett, manager of Dolly’s Bookstore located on Main Street, is happy with the new law. She said that people come in all the time to browse books and then purchase them elsewhere online. Hopefully, when customers check online prices and see the same taxes, they will now buy the books in the store, she said.
Williams believes that the introduction of online sales taxes will have little impact on customers’ shopping habits, save for big-ticket items where the tax adds up.
“I bet you’ll see an improvement in Main Street sales,” he said. “It’s not going to be a game changer.”
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