SALES TAX COLLECTION – VENDOR COMPENSATION FACTS
In 1992 Representative Marty Stephens ran H.B. 338 that had two significant impacts on retailers. First, it required retailers that had $50,000 or more in sales tax collections annually to remit the sales tax on a monthly basis rather than a quarterly basis. In exchange for taking this “float” away from the retailers the legislature provided a small amount of compensation (1.31% of the taxes collected) to retailers in an effort to compensate them for the administrative and regulatory burdens of colleting this tax for the State. On December 11, 2009, Governor Herbert released his budget proposal that included a recommendation to discontinue the 1.31% vendor compensation to retailers that are acting as tax collectors for the State of Utah.
• 45 states and the District of Columbia impose sales taxes on the purchase of tangible goods.
• 4,696 cities, 1,602 counties and 1,113 other tax jurisdictions across the country also impose sales tax.
• The State Tax Commission is compensated for collecting the State’s income taxes.
• County Assessors Offices are compensated for collecting the State’s property taxes.
• The State of Utah is compensated, by other government entities, for collecting and remitting the sales tax to these entities.
MORE FACT TO CONSIDER
• All other state tax collectors, including the State of Utah are compensated for collecting and remitting taxes.
o It is fundamentally unfair to require retailers to collect sales tax without any compensation while the entities that collect income taxes (State Tax Commission) and property taxes (County Assessors Offices) are fullt compensated for collecting these taxes.
o It is disingenuous for the State of Utah to propose taking away retailers compensation for collecting the sales tax while the State continues to charge other government entities for collecting and remitting these same sales taxes.
• The 1.31% vendor allowance already does not cover the full cost of collecting the sales tax.
o According to the 2006 Joint Cost of Collection Study (JCCS) the average cost incurred by retailers ranges from 2.17-13.47% depending on the retailer’s scale and location. The impact is regressive in nature, with the greatest burden being on the smallest retailers.
o The cost for retailers to collect and remit is even more burdensome when interchange fees are taken into account. Every time a credit or debit card is swiped to pay for purchases, retailers are required to pay at least a 2% interchange fee to credit card companies for the privilege of collecting the State’s tax.
• The best way to decrease the cost of collecting sales tax is to simplify the tax code.
o Sales tax systems are complex often times because cities, counties, the state, and in some cases special districts, levy sales taxes at different rates. Therefore, the more cities, counties and states in which a business resides, the greater the cost of implementing those taxes becomes.
o Before imposing additional burdens on merchants, states must first decrease the cost of collecting sales tax by implifying the tax code itself. Decreasing the allowance while not changing the tax code is simply an increased tax on a narrow class of business (retailers) at a time when jobs are being cut and the economic outlook is bleak.
• Changes in Utah’s vendor allowance law will put Utah at a competitive disadvantage at a time when there is a real need to create jobs.
o Before determining where or whether to open a store, retailers look at the business climate in that state including the presence or absence of vendor compensation. States without vendor compensation lose out on potential job creation and new investments.