The explosion of Internet sales is fueling a new debate over whether Arizona should try to force out-of-state firms to collect the state sales tax.
Rep. Jim Weiers, R-Phoenix, managed to push a bill out of the House Commerce Committee earlier this year to require firms like Amazon to start collecting the state’s 6.6 percent sales tax when they ship items to customers in the state. He said that is only fair, with local merchants selling the same items having to collect the levy and pass it on to buyers.
But the bill was quashed in the House Rules Committee.
On the other side of the fight, Rep. Tom Forese, R-Gilbert, is trying to corral colleagues to take a firm stance against taxation of Internet and catalog sales. He said Arizona should nurture online businesses, including the Arizona-based affiliates that sell their items through Amazon. And Forese said Amazon itself has helped the state’s economy by moving some of their processing centers here.
But a planned press conference to publicize that strategy never occurred when some people he was counting on for support told him they could not attend.
At the heart of the battle is an effort by states to capture taxes that are escaping. But standing in their way is a 1992 U.S. Supreme Court ruling that a company must have a physical presence in a state to be required to collect sales taxes.
In a bid to recapture at least some of what is being lost, most states, including Arizona, require those who buy items from out-of-state merchants to voluntarily report the purchases and pay the state sales tax. That system, though, has proved largely unenforceable, with collections far less than what they would be if the retailer, whose books can be audited, collected the tax and remitted the proceeds to the state.
What has happened, though, is several states have discovered what they believe is a loophole to allow them to put the burden on retailers, one that appears aimed largely at companies like Amazon.com and the way they operate.
Amazon has business relationships with companies in individual states — what it calls “affiliates’’ — who have their own websites but get a commission when a customer clicks on a link and makes a purchase. What states like California have done is redefine in their laws what it means to be conducting business in the state and, therefore, be required to collect taxes.
Amazon has taken a hard-line position on the issue. Hours after California Gov. Jerry Brown signed this new “nexus’’ legislation in June, the company announced it was cancelling its contracts with about 10,000 business partners in the state.
California is the latest to join the craze.
In New York, Amazon.com along with Overstock.com filed separate lawsuits against that state after it had adopted laws requiring them to collect sales taxes made by residents. Those cases remain open, with the companies collecting the taxes in the interim.
It was those laws that Weiers seeks to emulate in Arizona.
“It’s a matter of fairness,’’ he said, saying the issue was brought to him by the Arizona Retailers Association.
The way Weiers sees it, Amazon has been looking for the “loophole’’ in state laws, claiming that it has no business connection to Arizona. That contention, he said, is false.
He used the example of someone ordering a book from Amazon.
“They don’t keep them in their warehouse,’’ Weiers said, but instead get it from a merchant — a merchant who may be operating in Arizona. He does not see why running the sale through Amazon should exempt the transaction from taxes.
“This is so wrong,’’ he said.
Forese said proponents of taxing Internet sales, including traditional retailers, are taking a short-sighted approach.
“I would love to go back in time and see how horse and buggy makers tried through lobbyists and government to thwart the way of the automobile,’’ he said, calling it a “natural survival instinct.’’ Forese said online businesses are the wave of the future, and knows many people who have “dug themselves out of unemployment’’ by creating their own presence on the World Wide Web.
Forese conceded that he believes online sales should be taxed. And he believes that eventually will happen.
But he is in no rush to help it along.
“We have a recession that has driven a lot of people to have to be entrepreneurial and create these new businesses,’’ Forese said. And he worried about burdening these businesses with the “complexities’’ of having to figure taxes for customers in multiple states.
Forese said, though, this is bigger than whether it will affect some entrepreneur operating out a garage. He said there might be some opportunities for Arizona to nurture and become home to a major player in the new economy if the state just drags its feet a little longer on the issue. Forese said it’s occurred elsewhere.
“CEOs say that their success was largely due to the fact that government could not keep up with the regulating and taxing something they didn’t understand,’’ Forese said. He said that’s what allowed Microsoft to balloon into the dominant force it now is in the computer industry.
“That’s the ultimate prize we’re looking for here,’’ he said.
Ultimately, Forese said, there will have to be fairness in taxes among different types of retailers.
“I just want to make sure that whatever actions we’re taking as a state we’re being cautious and deliberate and caring more about the health horse (of free enterprise) pulling the wagon than we are about digging our hands into their pocket,’’ he said.
“There’s a trend in government where it gets creative to milk as much money from the free market cow as it possibly can,’’ Forese continued. “It’s detrimental to innovation.’’
Weiers agreed that a federal solution might be preferable — if that were in the offing. He said that should not be difficult.
“If Congress ever had the balls to do what they needed to do, they would say let’s go ahead and enforce what truly is the law,’’ he said. “If it’s coming from a state that you reside in, you’re supposed to collect on it.’’
Weiers also said he had no sympathy for arguments that the Internet companies would be on the hook if a customer did not remit Arizona’s sales tax.
He pointed out that, technically speaking, Arizona does not have a sales tax but a “transaction privilege tax’’ levied on the retailer. He said while merchants are free to pass that along to their customers, the responsibility remains with the seller.
Gov. Jan Brewer is staying on the sidelines, at least for the time being.
“I think that (issue) probably might, at some point, be resolved,’’ she said. “I’m not in a position today to really discuss that.’’
Pressed for how she would want it “resolved,’’ the governor said that the subject has been around as long as she has been an elected official. That goes back to 1982 when she was first elected to the Legislature, though the sales being discussed for taxation at that time were by phone and catalog.
“We know as we are moving into this new century of doing business that, I’m sure, that the federal government will continue trying to address that issue,’’ she said.
Amazon did not respond to requests for comment on the issue. But company officials, at a grand opening of a new company distribution center in Phoenix last month made it more than clear that his company’s decision of where to locate future facilities is linked to a state’s policies on sales tax.
Paul Misener, Amazon’s vice president of global public policy, said the U.S. Constitution established a “federation of states’’ that retained many powers and a federal government that took over some, “including the responsibility of regulating interstate commerce.’’
“Citizens of this country, individuals or companies, are free to choose where to live, and the state and local governments may adopt policies that attract and retain these citizens,’’ Misener said. “We deeply appreciate leaders who respect and appreciate the balance.’’
And Amazon.com CEO Jeff Bezos, in an interview earlier this year with Reuters, said his company would cuts its partnerships with affiliates in any state that requires it to collect sales taxes.
“In the U.S., the Constitution prohibits states from interfering in interstate commerce,’’ Bezos told Reuters, citing that 1992 Supreme Court decision. He said the “right place’’ to fix the issue is with federal legislation.
manini posted at 6:32 am on Sun, Aug 7, 2011.
Ummm, dumbest proposal I ever heard of trying to tax internet online merchants. Many internet merchants reside in other states or countries & I'd like to see U collect "sales taxes" from other states & countries...like MX or Canada, fools...LOL!!!
In_God_We_Trust posted at 7:16 am on Sun, Aug 7, 2011.
All online purchases made through stores located within Arizona are already taxed the same as it is in all states. Trying to collect taxes on internet sales from stores outside the state is not only impossible but an attempt by local business interests to prevent you from having any choice but to buy from them. Not a very free enterprise idea at all.
SethCold posted at 10:22 am on Sun, Aug 7, 2011.
There are a lot of online business that do not get taxed, there is one in particular called Intervention Counseling and it is not good to go into it, they charge a mint.
Stephanie posted at 10:24 am on Sun, Aug 7, 2011.
I have a fantastic idea...Go back to taxing the people that can afford it, tax big business (they are sitting on thier money anyway), then cut politicians' salary in half and make the politicians pay for their own healthcare. How about you pour THAT money back into the state! Jacka@@!
jezzabella posted at 12:41 pm on Sun, Aug 7, 2011.
Arizona, Mom and Pop online sellers are required to collect sales tax for anything they sell to an Arizona resident. Amazon, with a warehouse located in Arizona, should be required to do so, as well. If I order a book from BarnesandNoble.com, they collect the sales tax. Why should Amazon be exempt from collecting sales tax to AZ residents? It's all automated and should be very simple. Collect and pay.
NothingButTheTruth posted at 1:45 pm on Sun, Aug 7, 2011.
jezzabella, my understanding of present law is that any online store shipping from within Arizona already collect and pay taxes. This is just an attempt to force out of state businesses to pay state taxes for items shipped to Arizona. It has always been seen as beneficial to help grow the internet by not forcing businesses doing business outside of their state to pay state taxes both in the state they reside and to any state they ship to.
az2008 posted at 4:08 pm on Sun, Aug 7, 2011.
I see a lot of belly aching over how impossible it would be to require out-of-state retailers to pay state sales tax. However, it would be trivial for states to enter into reciprocity agreements to collect and disperse taxes from retailers. For example, if AZ had such an agreement with a dozen other states, they would simply require in-state retailers to report quarterly (as they do already) sale amounts on items shipped to one of those dozen states *by zip code*. Using online tables provided by other states, the retailer would determine how much to pay for a zip code and remit it with that quarterly report.
Some will belly ache about how haaaard it would be to maintain records and sum sales by zip code. Maybe they should go back to high school computer classes. It's *trivial*.
Some will belly ache about how someone might buy something and have it shipped to a non-reciprocal state. If we let perfection be the enemy of good, we'd repeal all laws.
Some will belly ache about how a zip code can span multiple sales-tax jurisdictions (rates). Just apportion the collected money by an average percentage of population and land mass.
I see this as a transition. After enough states enter reciprocity it would undoubtedly become part of the Uniform Commercial Code. Just a process. It's inevitable because it's simply not fair to tax local merchants while excluding non-local.
Some will belly ache about how local merchants add local costs. They pay for that through property taxes -- which remote merchants pay elsewhere. This is a very real case of some merchants *evading* taxation and gaining an unfair advantage.
LOGICannon posted at 5:07 pm on Sun, Aug 7, 2011.
An article I read recently said that Amazon was going to expand their facility in Phoenix and create more jobs here because they were able to work out this no sales tax deal with the state. Was that not the case? Or are politicians now going back on a deal that will force this massive employer to leave the state.
http://www.azfamily.com/news/local/Amazon-to-expand-Phoenix-fulfillment-center-add-jobs-121508094.html
NothingButTheTruth posted at 10:02 pm on Sun, Aug 7, 2011.
az2008, Wouldn't this have a tendency to create an atmosphere in the online business community that would destroy jobs? Never met a tax you didn't like? Arizona needs to attract business like Amazon. This new tax is not a good job creating bill. Let the peoples republic of California try to tax Amazon so that Amazon comes here to Arizona
soricobob posted at 5:15 am on Mon, Aug 8, 2011.
Of course taxes should be collected, otherwise it's money lost. If we're serious about reducing the deficit why not be serious about collecting money owed?
Suelee posted at 6:29 am on Mon, Aug 8, 2011.
The burden of record keeping and reporting sales (user) tax SHOULD be on businesses like Amazon.com and NOT the individual taxpayer. Sales tax is always passed on to the consumer anyway, but at least we don't have to maintain the records or have it complicate our annual income tax paperwork every year.
Again, I am not sure why Amazon.com is resisting this. They are a HUGE company and certainly able to manage the logistics of record keeping and reporting (Sears, KMart, JC Pennys, etc all do already) and the cost of the sales tax is passed on to consumers so get with the program and don't shift the record keeping headache to your consumers!!!
In_God_We_Trust posted at 9:31 am on Mon, Aug 8, 2011.
"At the heart of the battle is an effort by states to capture taxes that are escaping. But standing in their way is a 1992 U.S. Supreme Court ruling that a company must have a physical presence in a state to be required to collect sales taxes."
The US Supreme Court already ruled, so get over it you tax and spend liberals. We don't need new taxes, we need more government cuts in spending.
jezzabella posted at 5:24 pm on Mon, Aug 8, 2011.
NothingButTheTruth: Read what I said. ARIZONA online sellers have to collect sales tax from customers who reside in AZ. AMAZON has a warehouse in AZ and should have to collect sales tax for books sold to AZ residents. Why does the little seller have to comply with the law and the big corporation doesn't? It IS NOT a tax on Amazon, it is a SALES TAX all sellers have to collect. Everything Amazon does is electronic. It should be simple.
And why are so many people willing to cut any slack for these business giants? They kill the small businesses who are also employers and do the responsible thing and collect sales tax.
soldierone posted at 8:58 pm on Mon, Aug 8, 2011.
So they have a right to force these companies to pay fee's in other states for selling merchandise, then also be forced to collect taxes? These business are only thriving because of no taxes, suddenly you include that and they no longer have an edge. They also have to charge shipping fee's something normal retailers are not forced to provide....The states have no right at all putting their hands in this for money. If they do it should be an online adjusted tax, which should be less than half that of normal tax period. Otherwise your are putting these retailers at a disadvantage and not helping he economy at all as nobody will be able to afford anything once again. You will only cause more business problems and make the almighty Walmart even stronger.
NothingButTheTruth posted at 9:00 pm on Tue, Aug 9, 2011.
jezzabella, My understanding of present law is that Amazon collects taxes on items it ships from it's Arizona warehouse to Arizona buyers. What they would like to do is have all buyers from all states pay their state's taxes. This type of sales was deemed a major hinderance to online sales and would tend to kill it. Online sellers have to charge shipping and handling fees and taxes would just about kill it altogether much to the glee of Sam Walton and the wal-mart dynasty.
Anesilyn posted at 11:00 pm on Sun, Apr 29, 2012.
Online shopping and its proposed sales tax is a big issue. How do you like paying additional tax charges on your purchase? You can read here: More states pushing for online sales tax . Amazon, the popular online retailer, just got smacked with a tax bill in excess of $50 million from the state of Arizona. Arizona is just one of a growing number of states wanting an internet tax.