Arizona bill takes aim at closing online tax 'loophole', like Amazon - East Valley Tribune: Business

Arizona bill takes aim at closing online tax 'loophole', like Amazon

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Posted: Wednesday, March 7, 2012 5:20 pm | Updated: 10:41 am, Tue Mar 13, 2012.

PHOENIX -- State senators are poised Thursday to force Internet retail giant Amazon.com to start collecting -- and paying -- sales taxes on its purchases by Arizona residents.

The legislation is designed to close what Sen. Al Melvin, R-Tucson, said is a loophole in the law that lets some companies that do business in Arizona escape the levy. He said the issue is not so much getting more money for the state but a question of fairness.

"The way I look at it, it's a jobs bill,'' he said. "We're trying to save the brick-and-mortar store jobs.''

He said they already have a hard enough time competing with online retailers. Melvin said there's no reason they should be put at a further disadvantage because they have to collect the state's 6.6 percent sales tax and Internet retailers do not.

Melvin's legislation, SB 1338, does not name any retailer in particular. But the senator made it clear it is aimed squarely at Amazon.com.

The problem is that federal law generally prohibits one state from imposing its sales tax on products shipped from a retailer elsewhere that has no physical presence in the state. The Seattle-based retailers has argued that applies to its operations.

SB 1338, in essence, would expand the definition of what constitutes physical presence in the state to also include warehouses and distribution centers. That clearly would take in Amazon.com which has three of what it calls "fulfillment centers'' in Arizona.

The company has so far refused to comment on the legislation. And its Arizona lobbyist said he has not been authorized to discuss the issue with the media.

But if the experience elsewhere is any indication, the company will go along with some version of the law.

In Virginia, where Amazon.com has two fulfillment centers, the company reached a deal with the state to begin collecting sales taxes on goods sold to that state's residents beginning Sept. 1, 2013.

That was cemented earlier this week when the Legislature gave final approval to its "Tax Fairness Bill.'' It contains provisions similar to what Melvin is pushing here.

Even if approved, Melvin's measure would still not capture taxes on all Internet sales.

Merchants without an Arizona warehouse still would be able to avoid collecting the levy. And Amazon would be able to exempt itself again by shuttering its fulfillment centers here.

Melvin said the ideal solution would be for Congress to approve a federal law requiring all Internet retailers to compute and collect the taxes of the state where the item is being shipped.

"Both parties, Democrats and Republicans, are working on this at the federal level,'' he said.

"Who knows when they'll get it done,'' he continued, pointing out that Congress has debated whether to allow drilling in the Arctic National Wildlife Refuge for 30 years. "But I'm sure they will get it done.''

Melvin acknowledged that if his bill becomes law, Arizonans who order products from Amazon.com and other similarly situated online retailers will end up paying more, what with the added tax. But the senator said that is justified.

"Most people that I've talked to have said if I have to choose between a tax break buying online from a warehouse or a distribution center here or possibly saving some jobs in retail, I would forego that little tax break for the jobs,'' he said.

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