How can a state or city tax residents for buying an item somewhere else?
It seems like it would be difficult, but the state and most municipalities already do that by collecting a "use tax," usually the same rate as the local sales tax, on items that are used within their borders but purchased online or in another location that doesn't charge sales tax.
Gilbert's Town Council is considering adopting a use tax, while some in the business community try to figure out exactly what it is and how it works.
"I heard them talking about it at a council meeting, and I wasn't quite grasping it," Gilbert Chamber of Commerce President and CEO Kathy Langdon said Tuesday.
She said the chamber has invited Town Manager George Pettit to come and talk to the chamber board about the use tax, and she might then decide whether or not to endorse it.
Arizona Department of Revenue spokesman Dan Zemke said the state generally collects a use tax from major retailers on large purchases such as automobiles and appliances, either through self-reporting or audits. The state use tax rate is set at 5.6 percent, the same as the state sales tax.
But there are people who send checks and receipts into the DOR on their own.
"There are quite a few who do - not a huge number, but quite a few do," he said.
Arizona collected $303 million in state use tax during fiscal 2007, Zemke said, down from $306 million in fiscal 2006. Cities and towns collect their own use tax unless, like Gilbert, they rely on the state for all sales tax collection.
A discussion of Gilbert's proposed use tax ordinance was on the agenda for Tuesday night's Town Council meeting, with a final vote scheduled for Sept. 8. The only other East Valley city that doesn't currently levy a use tax is Apache Junction.
Town Councilman Dave Crozier said earlier Tuesday, "It appears that we really are the outlier on this compared to other communities, and on the other hand, business and industry is struggling right now, and I'm really very hesitant to do anything that might add to their trials and tribulations."
The ordinance, based on the League of Arizona Cities and Towns' model tax code, would create a 1.5 percent use tax, to be assessed on any items purchased by a Gilbert resident or business in a transaction that did not involve sales tax - unless it can be proved that the item isn't actually being used in Gilbert.
Tom Belshe, deputy director of the League of Arizona Cities and Towns, said the philosophy behind use tax has to do with wear and tear on city infrastructure. "Especially when it applies to cars, the reasoning is if I'm driving a car on the streets within the city limits, I am causing a lot of infrastructure costs, and sales tax is one of the things that helps us provide infrastructure for that car," he said.
While used-car lots on the edge of town may have been use taxes' original target, the growth of online commerce over the last 10 years has greatly expanded the number of transactions it could theoretically be applied to.
Actually doing that is a different matter.
Craig Carnahan, who in May moved his Cybergear business from Gilbert to Mesa because he felt Gilbert wasn't doing enough for small business, said any state or city's collection of use tax is very hit-and-miss. "Maybe two-thirds of the people that know about the use tax actually pay it, and a heck of a lot of them don't know about it," he said.
Brownie Connection owner Margo Fees, whose business sells baked goods online to customers worldwide, said she already charges those customers sales tax, and no one has ever complained about it.
She added that consumers in today's economy aren't exactly appreciative of facing any new costs as they cut back on spending, and town officials should consider doing the same.
"Maybe they should go back and tighten up their spending, get rid of extra people or whatever," she said. "Don't pass it on to business, big or small."
Belshe said that despite the difficulty some have in understanding and enforcing a use tax, the idea doesn't usually kick up a lot of controversy.
"There are other taxes that are more unpopular, like property tax," he said.