SB 110: Deputizing Out-of-State Companies as Tax Collectors

This Bill passed the Senate 25-1, but did not reach a floor vote in the House.

Libertas Institute opposes this bill.

Utah law requires individuals to pay sales and use tax on purchases made from out-of-state companies that do not collect and remit that tax on their behalf. This is rarely done, so many elected officials have sought ways to obtain the revenue as online sales have increased over time.

These out-of-state companies are not required to collect and remit tax when they do not have a physical presence (a “substantial nexus”) in the state. Senate Bill 110, sponsored by Senator Curt Bramble, aims to circumvent this by creating a sort of “economic nexus” whereby companies with gross revenue of $100,000 or more are required to collect and remit taxes from purchases made by Utahns.

This is constitutionally problematic on its face, as explained in a note attached to the bill by the Office of Legislative Research and General Counsel (a non-partisan office of attorneys that serve the legislature):

It is impossible to predict the outcome of these actions and what changes, if any, they might have on the standards set forth in Quill [the relevant U.S. Supreme Court case]. However, because current dormant Commerce Clause case law under Quill requires physical presence to satisfy the substantial nexus requirement, there is a high probability that, unless the United States Supreme Court overrules its holding in Quill or Congress takes action to redefine the substantial nexus requirement consistent with the provisions of this bill, a court that considers the constitutionality of the economic presence provisions of this bill will strike down those provisions.

Apart from the constitutional concerns of a state aiming to deputize out-of-state companies as tax collectors, the bill is concerning for another reason: a windfall of cash to the government. While the tax requirement has been in place, its lack of enforcement means that the new imposition creates a new tax in experience and effect, as the taking of money is something to which the public has not traditionally been accustomed.

According to the fiscal note on the bill, up to $94 million could come to local governments if this bill were to pass. While Senator Bramble has claimed that his approach would be revenue neutral, Senate Bill 110 does not create a corresponding tax decrease to offset the new revenue being collected.

Accordingly, and because of constitutional concerns of having the state require out-of-state companies to become tax collectors, we must oppose this bill.