Tuesday, March 12, 2013

Senate Bill 226 Moves The Needle…In The Wrong Direction

A newly proposed bill that would extend Utah’s taxing authority to out-of-state businesses is making its way through the Utah Senate.  It comes as no surprise that the bill, which is already being flagged as unconstitutional, is being sponsored by a Utah Republican lawmaker, Sen. Wayne Harper.  Despite all the rhetoric about their desire to lower taxes and thus improve living standards for Utahns, the data suggests Republicans are just as willing to dip into your wallet to benefit certain privileged lobbyists or special interests as Democrats.  After all, taxes and penalties on business are always passed on to consumers.

The bill, in effect, would mandate that out-of-state businesses, using Utah companies to advertise their products and services, collect a sales and use tax from Utah customers.  Aaron Schubach, owner of Standard Optical, arguing for the bill (and his own special interest) notes that the $180 million in anticipated tax revenue could be reinvested in schools, government insurance expansion, “and some of those other things”.  I’m sure he’s right.  There’s always some pet program out there to throw money at when you have as large a budget surplus as Utah does.  Undoubtedly, Standard Optical, like brick and mortar bookstores, pet stores, and pharmacies, is feeling the pressure of competition from online retailers like 1-800-CONTACTS which figured out a more cost-effective business model and is capitalizing on it. 

The genius of this bill is that it doesn’t directly affect Utah businesses (like 1-800-CONTACTS or Overstock.com), since it specifically targets out-of-state businesses.  Why then would in-state, e-commerce companies take a position against a bill that would apparently give them competitive advantage over out-of-state businesses?  The answer is found in the classic oversimplification of economic consequences used by special interests and lawmakers to foist new taxes and legislation on the masses.  By pointing only to the immediate consequence our wise legislators look like advocates for local businesses, schools, and citizens.  However, the unintended consequence of this bill surviving a vote and imminent Supreme Court challenge would be that all states could then go after out-of-state businesses for sales and use tax collection.  The question needs to be asked:  If use tax collection from Utah taxpayers is already the law, why then press private, out-of-state businesses to collect it on behalf of the states?  This creates a burden and cost on these businesses that does not currently exist, which will eventually be passed on to consumers in Utah and elsewhere.  The real reason for sponsoring a bill that makes an end run around Utah’s unsuccessful collection of use taxes from its own citizenry, is that lawmakers recognize that most Utahns don’t pay the use tax; hence the $180 million dollar figure which was not randomly pulled out of thin air.

In some respects, Mr. Schubach and other advocates like Scott Hymas of RC Willey are sympathetic characters.  They are paying taxes that their competitors don’t have to.  That is unfair (unless they believe that those taxes benefit them or their companies through improved local education, Medicaid, and “some of those other things”; which out-of-state businesses don’t enjoy to the same degree).  However, their proposed remedy for this burden placed upon their respective businesses by the state is to encourage the state to place the same burden upon others; much like a disgruntled sibling who derives joy from the punishments of his brothers and sisters.  Rather than adapting more fully to the changing consumer model, Schubach and Hymas have chosen to support the expansion of taxing authority beyond Utah’s constitutional limits; to get back at those pesky online stores which save Utah consumers too much money. 

A better solution would be to advocate for lower taxes across the board.  This solution puts more money in the hands of Utah consumers directly, a good deal of which would be spent in-state.  The more money people have, the less they quibble about spending an extra $20 on a pair of corrective lenses or a couchside lamp; especially when they can walk out of the store with them immediately, rather than wait for shipping.  In this way Schubach, Hymas, and others could capitalize on one of the few advantages they have over online stores, while making life better for all Utahns.
I recommend reducing or eliminating sales tax altogether to boost consumer spending, improve quality of life for individuals and families, and build upon Utah’s reputation as a great place to live, work, and run a business.

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