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Utah, The Next State to Grasp at a Method for Identifying Remote Sellers

The Utah Senate has introduced legislation (S.B. 65), which if passed, would require “selling services” (think platforms such as Amazon or eBay) to make quarterly reports to the state regarding which of their sellers made sales to Utah customers and did not collect Utah sales tax.

The intent of the legislation is that the State Tax Commission could then contact these non-collecting sellers, “educate” them on the obligation of their Utah customers to report use tax on the purchase(s) and encourage them to inform these customers of this obligation.

It is not unreasonable to believe that the Commission is hoping that this activity may uncover unregistered sellers that actually have an obligation to be registered and collect and remit sales tax. Or failing that, at least try to convince the remote sellers to register and collect Utah sales tax voluntarily.

This is yet the next play in an ever-increasing attempt states have undertaken to identify remote sales and collect the missed tax on the goods shipped into their state. Colorado took a similar, but more aggressive, approach several years ago when it passed legislation that required all remote sellers to inform the state of the untaxed sales shipped into their state. Even though the enforceability of this approach was certainly questionable from the start, (why would, say, a New York seller have any desire to report sales made to Colorado customers if they don’t already have an obligation to actually collect their tax, and how would Colorado know who is selling into their state anyway?) the law was challenged in court and struck down.

To understand when a seller has the obligation to collect tax on sales made into another state, and when they do not, you must understand the concept of “nexus” and the various court cases that have set precedent related to nexus rules.