Taxing online sales? Measure twice, cut once, say Arizona Small Businesses

Date: March 28, 2019

State is setting itself up for lawsuits with House Bill 2702

NFIB Arizona State Director Chad Heinrich took to the airwaves on March 18 to succinctly outline what the U.S. Supreme Court’s Wayfair decision has meant for states, what Arizona is getting wrong that other states are getting right, why House Bill 2702 is the wrong vehicle for the levying and collecting of sales taxes on purchases made online, and why studying this issue before taking legislative action is the right way to go.

Heinrich’s five-minute interview by Mark Brodie, host of The Show on KJZZ 91.5 FM, can be heard here.

Arizona is “known to have the most complex sales tax laws in the country,” said Heinrich in the interview. “A study is needed to avoid constitutional problems with any approach we might take in a haphazard way.

“Other states have made significant efforts to simplify their sales tax systems all in preparation for someday maybe being able to overturn part of the Quill decision. Arizona hasn’t been doing that.”

The Quill decision prohibited states from taxing the online sales of businesses that didn’t have a physical presence in the state of the purchaser. The Wayfair decision, made last year, approved South Dakota’s law allowing online sales to be taxed if the business establishes an economic presence through a minimum number of transactions or amount of total sales.

Related Information

“By adopting a single state-wide retail tax base, even if it did not adopt the SSUTA [Streamlined Sales and Use Tax Agreement], Arizona would dramatically simplify its tax system because remote sellers would only have to comply with one tax code when they sell products to Arizona customers,” according to the Cavanagh Law Firm and the law firm of Jennings, Strouss & Salmon.

Write the principals, “the fact that Arizona allows each municipality to impose taxes under its own tax code may make it impossible for the state to successfully defend H.B. 2702 against challenges that its economic nexus provisions impose an undue burden on interstate commerce because remote sellers would be forced to evaluate the taxability of their products up to 92 separate tax codes when they sell their products to Arizona customers.”

According to the Arizona Tax Research Association, “Most other states already had laws on the books related to remote nexus, meaning the issue had been debated and discussed prior to the [Wayfair] decision. Arizona did not have a remote seller nexus law on the books and starts from scratch.”

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