State lawmakers will make a bid Wednesday to close a loophole which allows online retailers to avoid collecting hundreds of millions of dollars of sales taxes.
The measure, SB 1338, seeks to legally redefine who is a "retailer" to include not just companies that sell items from stores here but those which "sell" them from somewhere else but also have distribution centers, warehouses or similar operations within the state.
That change is significant, as federal courts have said taxes can be imposed only when a retailer has a legal "nexus" in the state. And to this point, that has been interpreted to mean only online sellers who also have some sort of actual retail outlet in this state.
Michelle Ahlmer, executive director of the Arizona Retailers Association, said that means Target.com collects the state sales tax when selling something to an Arizona resident because of its stores here. But Amazon.com, she said, does not.
The legislation would sweep in firms like Amazon based on its "fulfillment centers" in Phoenix, where orders are processed. But it would still exempt firms where items are sold and shipped from outside the state when there is no presence in Arizona.
Even that change, Ahlmer said, will make a big difference.
She said a study her association commissioned figured the state lost about $317 million in uncollected sales taxes in 2010. That study predicted that, based on the increasing popularity of online sales, the loss would rise to $576 million by 2015.
Sen. Al Melvin, R-Tucson, who is sponsoring the legislation which will be heard by the Senate Committee on Commerce and Energy Wednesday, said the issue is even more basic than that.
"For me, what it comes down to, is not a question of taxes but a question of jobs," he said. "In this recession, we need to protect the jobs that individual citizens have."
Melvin acknowledged that Arizonans can save money by ordering online and not having to pay the state's 6.6 percent sales tax as well as any local taxes. But the senator said his constituents will understand that it's more important to preserve jobs at Arizona retailers than to save a few cents or a few dollars.
That loss, Melvin said, is real, citing a man in his legislative district who had three Christian bookstores.
"He had to close one of them," Melvin said. "He couldn't compete with the online book sales."
Ahlmer made it clear that one of the prime targets of the legislation is Amazon.com, which she believes has a presence in the state despite its claims to the contrary.
"There's a very large online retailer that has about four million square feet," she said, a clear reference to the three Amazon Fulfillment Centers in the state.
Even without the legislation, the state already is targeting that firm.
Earlier this month, the company disclosed that the state Department of Revenue has issued a $53 million assessment for unpaid taxes from March 1, 2006 through the end of 2010.
In a filing with the Securities and Exchange Commission, Amazon said the assessment "is without merit and intend to vigorously defend ourselves in this matter."
Ahlmer said the way companies have been able to avoid having to collect taxes is by hiring people for Arizona operations under a separate business name or has the property in the name of a subsidiary. She said this legislation would remove any legal doubt.
"You can't claim that's not you," she said.
Company representatives did not respond to requests for comment about the legislation.
The hearing comes six months after Gov. Jan Brewer publicly toured one of Amazon's three fulfillment center warehouses as part of an example of economic development in the state.
Press aide Matthew Benson said his boss was not informed ahead of time about the Department of Revenue assessment, saying the state agency "determines the proper tax liability for Amazon and every other taxpayer in Arizona." And he said that, because Brewer cannot access Amazon's confidential records, she cannot comment on whether she believes the company owes money to the state.
But Brewer, while courting firms like Amazon, has sidestepped questions in the past about whether these types of retailers should be collecting Arizona sales taxes.
Amazon has mounted legal challenges to efforts by other states to force the company to collect sales taxes. And its officials have made it clear that decisions of where to locate future facilities is linked to each state's policies on sales taxes.
Rational Human posted at 4:03 pm on Tue, Feb 7, 2012.
I wonder if this attempt to collect taxes will result in more revenue for the state or a net loss of jobs as Amazon closes down those fulfillment centers or moves them to another state that wont try to tax them? Is this a good move for a state trying to attract new business? I'm not so sure, but I hope they think this through before making any rash decisions. Our budget is balanced and we are on the rebound somewhat, so let's not blow it.
Rich posted at 4:15 pm on Tue, Feb 7, 2012.
This is a job killer. Why do we elect people with a penchant to kill golden egg-laying geese while giving tax credits to build yet another mall? We need an Aims Test they have to pass to run for office.
AZVet posted at 4:26 pm on Tue, Feb 7, 2012.
How is this a jobs killer? If you believe Amazon's rhetoric of closing their warehouses, I have some land in to sell you in Florida. The fact is that Texas passed similar legislation, and Amazon actually ADDED warehouses in the state. We are losing thousands of local retail jobs just so that Amazon can employ a few hundred at minimum wage.
az2008 posted at 4:30 pm on Tue, Feb 7, 2012.
I don't like paying taxes, but nobody should be above the law. If local retailers' sales are subject to taxation, so should sales crossing state boundaries.
Rich posted at 6:35 pm on Tue, Feb 7, 2012.
People keep telling you that Arizona is on the bottom in education and every time something comes up here, they prove it. Amazon isn't the only online retailer in the world. Look what the Feds did with 1099s, scaring people out of a market online. Unless federal law is changed this is a job killer, and Amazon comes or goes, but you don't get paid and the goods still show up at the door. This is a combination of corruption and ignorance, little more. If the laws are going to be changed regarding local taxes and mail order, or online order, trying things state by state only hangs everyone, this issue is why you elect Senators and Congressmen. This is the wrong fight in the wrong venue. Well, at least they used to teach Civic in high school, obviously they don't anymore.
abimopectore posted at 7:32 pm on Tue, Feb 7, 2012.
These legislators couldn't come up with good business legislation even if someone spelled out what they should do; instead, they're doing everything possible to kill whatever business is still in Arizona.
Rational Human posted at 8:18 am on Wed, Feb 8, 2012.
They could if they were democrats, right abiexpectorant? The truth is that adding state sales tax probably wont kill online sales or increase any jobs. All it will do is add some revenue to the state coffers. Just another tax increase. I though democrats loved tax increases?
Suziehaystack819 posted at 11:01 am on Wed, Feb 8, 2012.
Lawmakers are like a crack addict on crack only their crack=money.
It wouldn't surprise me is all these law makers got together and come with this tax against Amazon just so they could extort money under the table just to vote against it.