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Online Remote Sales Tax Data (Wayfair) Starts To Roll In

At the 2019 Taxes Now Conference in May, State Tax Commission Chair John Valentine provided a new datapoint that many have been waiting to see. Those that were able to hear his remarks (you can see his slides and hear his remarks on our website HERE) might have noticed the first public comments about what “new revenue” might be coming in to the sales tax coffers of the state after the United States Supreme Court decision in South Dakota v. Wayfair.

Since January 1, 2019, sales tax from online purchases should be collected and remitted for purchases made in Utah. Now that the first quarter data has come in, the Tax Commission was able to provide some data on what might be happening. Commissioner Valentine gave three data points since the passage of new legislation addressing the issue. First, there have been approximately 1,420 to 1,880 new registered online sellers. Second, they have seen approximately $120 million to $170 million in new taxable sales from them. Finally, that translates to approximately $8 million to $12 million in sales tax revenue in the first quarter of 2019.

This is noteworthy data, since many policymakers have wondered how the numbers would shake out. There are a few calculations you need to make to try and arrive at future expected revenue, however a relatively accurate number can be arrived at. Mr Valentine warned that seasonality needs to be taken into account in order to accurately make a guess at what an annualized total might be. So, your Utah Taxpayers Association has examined the last five years of quarterly sales tax data from the Tax Commission to quantify how the various quarters differ.

Using historical data, on average, the second quarter revenue comes in 5.44% higher than the first quarter, the third quarter at 10.46% higher, and the fourth quarter at 12.40% above the first quarter. So, if you take the middle of the first quarter data that he shared ($8 million to $12 million) at $10 million and use those averages you arrive at an annualized number of $42.83 million.

However, you don’t stop there. You have to factor in what is known as the “marketplace seller” issue. This is where even under the new legislation, sellers on platforms such as Amazon that are independent of Amazon and just using Amazon as a facilitator, are not required to collect and remit sales tax. For example, if you buy a bike from Amazon directly, they would collect and remit sales tax from you. However, if you buy the bike from “Bob’s Bike Shop” that is a marketplace seller on Amazon’s platform, they would not collect and remit sales tax from you. That issue has been fixed by Senate Bill 168 (Bramble) in the 2019 legislative session and goes into effect Oct 1, 2019. Once that goes into effect we should pick up the missing revenue from those marketplace sellers.

Policymakers have been operating on a consensus that approximately 40% of online sales fall into the category of “marketplace sellers”. So, if we know we are missing out on 40% until Oct 1, 2019, the $42.83 million represents 60% of what should be the annual number we might expect. Doing the math gives you an annual number of approximately $71 million annually.

In addition, Utah has been collecting new sales tax revenue from online remote sellers for the last couple of years. The Tax Commission initiated a program for voluntary compliance for many online sellers that wanted to comply. That program is now bringing in an estimated $50 to $70 million in revenue annually.

Adding in that additional $50 to $70 million from voluntary compliance to the $71 million totals a figure of $120 to $140 million. That is tracking right towards the figure of $200 million annually that Chairman Valentine spoke about during an interim meeting for the Revenue and Taxation committee in 2018 as the right number to use for policy purposes. In recent conversations with your Utah Taxpayers Association, Valentine still says $200 million is the proper number to use as new revenue from online remote sellers solidifies.

So, $120 to $140 million and growing towards the $200 million mark. This is new revenue that is rolling into the State of Utah’s coffers going forward and policymakers need to remember that they made a promise to the taxpayers of Utah, when the state signed onto the Streamlined Sales Tax Project, that they would use that revenue to lower taxes and not grow government. Your Utah Taxpayers Association will be relentless in making sure that promise is kept.

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