Utah government leaders welcomed last month’s U.S. Supreme Court ruling that cleared the way for states to compel online retailers to collect sales taxes.
But reactions to the ruling, including that Utah was poised to gain some $285 million in new taxes, were somewhat confused. That’s because the bulk of the money had already been factored into the state’s annual budget and divided up among public programs in March.
In practical terms, the bonus from online sales taxes is already being spent, and may even have been overdrawn.
“I was a little confused when everybody started going back to the original [estimate], throwing the 285 [million dollar number] around again,” said Sen. Jerry Stevenson, R-Layton, the Senate’s budget chairman. “We’ve accounted for a big piece of that. Not all of it, but a big piece of it.”
Stevenson said voluntary agreements with Amazon and other major online retailers to collect Utah sales taxes added roughly $140 million to ongoing revenue calculations for the 2018 legislative session.
The Supreme Court’s decision is expected to bring in another $60 million for the state’s coffers, Stevenson said, from those retailers that did not voluntarily collect sales taxes.
“We confused this a little bit,” Stevenson said. “This online sales tax has been a nightmare to deal with.”
While lawmakers expect a combined $285 million in annual revenue from online sales — roughly $200 million for the state and $85 million for local government — budget analysts for Gov. Gary Herbert assume a lower number of $200 million total.
The governor’s team says Utah has already collected roughly $90 million in state and local online sales taxes, or about half of what the state should expect going forward.
But however much money truly comes in, both legislative staff and the Governor’s Office agree the majority of funding is already committed, leaving relatively little left for new investment after the Supreme Court’s decision.
“Those funds are accounted for,” said Kristen Cox, executive director of the Office fo Management and Budget. “A big chunk of funds have already been collected.”
The confusion over how much money is expected, and when it arrives, resurfaced last month during Gov. Gary Herbert’s monthly televised press conference.
Responding to a question from a Tribune reporter, Herbert suggested the flow of new sales taxes from the Supreme Court decision could replace a proposed gas tax increase that is part of a compromise package with the Our Schools Now campaign to boost education funding.
The governor later backtracked on those comments, saying he supports the gas tax increase and that sales tax revenue would be insufficient to cover the roughly $120 million schools aim to receive through a 10-cent-per-gallon hike at the pumps.
“He hadn’t been fully briefed on the fiscal impacts,” Herbert’s spokesman Paul Edwards said of the governor’s reaction to the Supreme Court ruling. “He’s exactly where he’s always been, which is that this compromise with the Our Schools Now Initiative is the best way to go.”
The November ballot will include a non-binding question about the gas tax, giving voters the opportunity to voice their support or opposition to the proposal ahead of potential action by lawmakers in 2019.
Edwards said the gas tax is necessary to stop the flow of sales tax funding to support road projects, which in turn would allow for more investment into education.
“What we’d like to do is see [road] users pay their fair share for transportation funding so that there’s a better rebalancing,” he said.
The gas tax could be in trouble at the ballot box, though. A recent Tribune-Hinckley Institute of Politics poll showed 56 percent of voters in opposition compared to 42 percent in favor.
Stevenson said he plans to vote in favor of the gas tax increase. But he acknowledged a challenge in explaining the realities of state budgeting and revenue collection to voters.
“I think the question is, ‘can we educate the public as to why this is a great idea?’” he said. “It does put more money into education, and that’s what we have to have.”
After the governor’s comments about funding schools with online sales taxes, Stevenson said he worries about Utahns expecting a flood of new dollars for the state’s priorities.
“I was a little surprised when I heard the governor say that,” he said. “I think he’d maybe been looking at some of these big numbers.”
Online shoppers were previously expected to pay sales taxes voluntarily, but very few did. Utah government leaders had long hoped to secure those tax dollars, to both support state programs and to level the playing field between online and traditional brick-and-mortar retailers.
That led to the voluntary agreements with companies like Amazon and AirBNB, which closed the gap between collected and uncollected taxes, but mitigated the impact of last month’s decision in South Dakota v. Wayfair, Inc.
And what does come in from retailers without a voluntary agreement — estimated at roughly $60 million in state revenue — will largely be absorbed by a $55-million tax break for manufacturers that lawmakers approved earlier this year. Another $25 million in local taxes would go the the manufacturers’ exemption.
Sen. Howard Stephenson, R-Draper, sponsored SB233, the tax break legislation. He said he expects online sales taxes to more than cover the $55 million state cost, but added that lawmakers are able to adjust the formulas if revenues were overestimated.
“We need better numbers to know how much of it is in the pipeline and how much is not,” Stephenson said. “I’m a little more optimistic about the amounts that we will be getting than some others are. I don’t have anything to base that on except my gut.”
Sen. Curtis Bramble, R-Provo, agreed that 2018’s spending bills can be revised if online sales revenue falls short of expectations.
“We’ll revisit those bills if our projections are wrong,” he said.
Tribune reporter Taylor W. Anderson contributed to this article.
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