PHOENIX — One of the nation’s largest online retailers beat back a bid by state lawmakers Thursday to make it start collecting and paying sales taxes on its purchases by Arizona residents.
Several senators said they understand how Internet sales can undermine Arizona-based retailers who are required to levy the state’s 6.6 percent sales tax. That puts those retailers at a competitive disadvantage.
Sen. Al Melvin, R-Tucson, said the measure would help “save the brick-and-mortar store jobs.”
But Sen. Jerry Lewis, R-Mesa, said SB 1338 is flawed.
“It’s going against one single company,” he said. “And that is against our Constitution.”
That company — not mentioned by name in the bill — is Amazon.com. And even Melvin conceded that the way it is crafted is designed to capture taxes on its sales.
But Melvin said that, at least for the time being, there is no way for Arizona to force all online sellers to collect the state tax.
Lewis said there is a solution to the problem that Melvin is trying to solve: Have Congress enact a law to require all Internet retailers to pay the sales taxes for the states where the goods are being shipped. While such legislation has been debated for years, a bill has yet to emerge.
Central to the issue 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 retailer has argued that applies to its operations. And Lewis said that was justified because the company has no retail outlets in the state.
Melvin crafted his legislation to expand the definition of what constitutes physical presence in the state to also include warehouses and distribution centers. That clearly was designed to take in Amazon.com which has three of what it calls “fulfillment centers” in Arizona.
But other retailers with no presence at all in Arizona would still escape the sales tax.
Issues of equity aside, Lewis said there’s another fairness issue involved. He said Amazon.com built warehouses in Arizona based on what was its understanding of the law at that time: No retail outlets meant no mandate to collect taxes.
“For us to now change the rule makes it a little difficult for me to go back to people that are wanting to locate their business in Arizona and say, ‘Please come to Arizona where we may change the rules on you at a later date,’” Lewis said. “And I would like to encourage more businesses to come to this great state and plant their roots deep and know that we’re not going to change the rules on them.”
Even if Melvin is unable to resurrect the legislation, that does not mean Amazon.com is off the financial hook.
Last month the company disclosed that the Arizona 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, the company said the assessment “is without merit” and the company intends to defend itself vigorously.