Update, 12.9.2016: KSL.com reports that Amazon is entitled to keep approximately 18% of the sales taxes it collects in Utah, under the terms of the deal. However, neither the company nor the state has confirmed that figure. It is not uncommon for states to reward businesses for collecting and remitting taxes when they aren't required to do so by law.

Amazon.com has agreed to voluntarily collect Utah sales tax as of January 1, 2017.

This is a victory for Governor Gary Herbert and the Utah State Tax Commission, which helped negotiate the agreement; the giant online retailer isn’t required to collect the tax because it lacks a physical presence in Utah. Amazon hasn’t publicly commented on the deal, but it has made similar agreements with a number of other states, including Alabama, Ohio, and the District of Columbia.

Gov. Herbert was clearly pleased, telling members of the Deseret News and KSL editorial boards:

“News flash: Amazon has agreed. We have been working to get a voluntary agreement with Amazon, and it looks like we’ve done that now.”

Yet getting Amazon to agree to collect tax on Utah sales is just the first step, as Amazon isn’t the only remote seller not collecting tax on Utah transactions. The governor recommends the state “aggressively pursue collection of the estimated $200 million in taxes currently due on remote sales." He calls this a “major issue.” Although Utahans “may enjoy not paying the tax that is currently due on internet and catalog purchases … [it] creates a very real impact on the state’s ability to fund education in Utah.”

Fix the sales tax base

Untaxed remote sales aren’t the only reason the state’s sales tax base hasn’t kept pace with its economic growth, and taxing remote sales is just one part of the governor’s budget recommendations for fiscal year 2018. He’s also calling for the state to “expand the tax base to move toward taxing all final consumption (goods and services) uniformly while maintaining a low and competitive rate.”

His plan notes that the economy has become increasingly service-based, and many services are excluded from sales tax. In addition, “digitization of goods has eliminated or reduced some segments of the economy that were goods-based and turn them into electronic services,” many of which are exempt from sales tax. The governor proposes broadening sales tax to currently exempt services and electronic goods and services.

Finally, he plans to align “Utah’s tax structure with the modern economy … [by] identifying and reviewing tax credits, tax exemptions, tax exclusions, and other preferential tax loopholes.”

Not a new tax

Utahans have always owed tax on any taxable goods purchased online or from a catalog. If sales tax isn’t collected at the time of sale, consumers owe the state use tax.

Use tax is supposed to be remitted with state income tax returns, but individual use tax compliance is extremely low. It’s also hard to enforce, which is why Utah’s sales and use tax revenue has decreased as online shopping as increased. Sales and use tax compliance always increases when retailers such as Amazon collect tax on behalf of consumers.

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