Some Businesses Balking at Herbert’s Tax Plan
By Jasen Lee
Deseret News
Published: Monday, Dec. 14, 2009 11:51 p.m. MST
The governor’s budget proposal to eliminate a discount given to retail businesses is drawing criticism from some business owners.
On Friday, Gov. Gary Herbert released his 2010-11 budget plan in which he proposes that state lawmakers repeal a discount of 1.31 percent of sales taxes that larger retailers are allowed to keep as compensation for collecting the revenue for the state. The prospect of losing that money is not sitting well with some in the business community.
“We wouldn’t be in favor of (repealing the sales tax discount). That would hurt us,” said Eldon Payne, chief financial officer for the Salt Lake City-based Gastronomy Inc. restaurant group. “I’d hate to see that go away.”
Payne said losing the vendor discount would cost his company about $20,000 each year.
“In the margins we work in, that’s significant,” he said.
Larger entities, such as car dealerships, could stand to lose even more.
This is an interesting and revealing article. How many of us were even aware that a discount was being given to corporations for collecting sales tax? When was the discount instituted? And which corporations are the major beneficiaries of this discount? And how much have these large corporations given in campaign contributions? And exactly what is the cost for a corporation to collect sales taxes? and can it be calculated?
We will search for the answers to these questions, but the first reaction is that corporations that collect the taxes have very little expense in collecting it, banking it, and sending in occasional payments, and they get to collect interest on the money while it sits in their bank accounts until it comes due. In reality sales tax money is an interest free loan to a corporation that continues to roll over and over. It’s interest free working capital provided by the tax payers.
The kickbacks to corporations have amounted to $20 million per year. That’s some big time money.
It looks like this is a nice little skimming off the top kickback to large corporations, while in reality it is a lot more expensive and tedious for small businesses to process and account for the sales taxes than it is large businesses.
At first glance, this looks like a very appropriate action on the part of Governor Herbert and we commend him for it. He found an inequity in the law and he is right to change it.
While the governor’s budget proposal does not include an outright tax increase, it includes two revenue enhancements — a switch to quarterly withholding for estimated income tax payments and a repeal of the sales tax vendor discount for companies that in the previous year remit more than $50,000 in taxes. If those changes are implemented, the timing of tax payments for individuals and tax receipts paid by businesses will be increased.
According to the governor’s office, the switch to quarterly estimated income tax payments would net the state at least $125 million in one-time revenue, while the proposed repeal of the sales tax vendor discount would net an additional $20 million annually, beginning July 1, 2010.
State budget analysts say just five companies reap 20 percent of the vendor discount benefit, and the average yearly income for most businesses is $800 to $1,000.
Herbert said he considers the change good tax policy. “Much more devastating would be a tax increase,” he said. “This is not a tax increase.”
While the Salt Lake Chamber said it supported the income tax withholding change, spokesman Marty Carpenter said it will seek input from its members before taking a position on the sales tax vendor discount.
Meanwhile, the president of the Utah Taxpayers Association, Howard Stephenson, said the proposal to take away the sales tax discount for retail vendors is patently unjust.
“The real fairness issue here is whether a retailer should be compelled to collect taxes and to pay the cost of collecting those taxes without any reimbursement,” said Stephenson, a Republican state senator from Draper. “To take (the discount) away entirely would essentially say, ‘We want you folks in the private sector to pay our costs of collecting taxes.’ ”
He said retailers should be reimbursed for their efforts and that proposing to repeal the discount is a “breach of trust with those retailers who are doing the government’s business of tax collection.”
Stephenson said he expects plenty of opposition from lawmakers and retail business owners when the proposal comes up during the legislative session in January.
One local retailer said the proposal is indicative of the kind of law that hinders businesses from growing.
Jill Edwards, owner of Big O Tires in Sandy, said government too often makes it more difficult for small-business people like herself to prosper by increasing the cost of operation.
“My gross profit is less now because … I pay out more (in taxes and operating costs) now than I ever paid before,” she said.
e-mail: jlee@desnews.com