The explosion of Internet sales is fueling a new debate over whether Arizona should try to force out-of-state firms to collect the state sales tax.
Rep. Jim Weiers, R-Phoenix, managed to push a bill out of the House Commerce Committee earlier this year to require firms like Amazon to start collecting the state’s 6.6 percent sales tax when they ship items to customers in the state. He said that is only fair, with local merchants selling the same items having to collect the levy and pass it on to buyers.
But the bill was quashed in the House Rules Committee.
On the other side of the fight, Rep. Tom Forese, R-Gilbert, is trying to corral colleagues to take a firm stance against taxation of Internet and catalog sales. He said Arizona should nurture online businesses, including the Arizona-based affiliates that sell their items through Amazon. And Forese said Amazon itself has helped the state’s economy by moving some of their processing centers here.
But a planned press conference to publicize that strategy never occurred when some people he was counting on for support told him they could not attend.
At the heart of the battle is an effort by states to capture taxes that are escaping. But standing in their way is a 1992 U.S. Supreme Court ruling that a company must have a physical presence in a state to be required to collect sales taxes.
In a bid to recapture at least some of what is being lost, most states, including Arizona, require those who buy items from out-of-state merchants to voluntarily report the purchases and pay the state sales tax. That system, though, has proved largely unenforceable, with collections far less than what they would be if the retailer, whose books can be audited, collected the tax and remitted the proceeds to the state.
What has happened, though, is several states have discovered what they believe is a loophole to allow them to put the burden on retailers, one that appears aimed largely at companies like Amazon.com and the way they operate.
Amazon has business relationships with companies in individual states — what it calls “affiliates’’ — who have their own websites but get a commission when a customer clicks on a link and makes a purchase. What states like California have done is redefine in their laws what it means to be conducting business in the state and, therefore, be required to collect taxes.
Amazon has taken a hard-line position on the issue. Hours after California Gov. Jerry Brown signed this new “nexus’’ legislation in June, the company announced it was cancelling its contracts with about 10,000 business partners in the state.
California is the latest to join the craze.
In New York, Amazon.com along with Overstock.com filed separate lawsuits against that state after it had adopted laws requiring them to collect sales taxes made by residents. Those cases remain open, with the companies collecting the taxes in the interim.
It was those laws that Weiers seeks to emulate in Arizona.
“It’s a matter of fairness,’’ he said, saying the issue was brought to him by the Arizona Retailers Association.
The way Weiers sees it, Amazon has been looking for the “loophole’’ in state laws, claiming that it has no business connection to Arizona. That contention, he said, is false.
He used the example of someone ordering a book from Amazon.
“They don’t keep them in their warehouse,’’ Weiers said, but instead get it from a merchant — a merchant who may be operating in Arizona. He does not see why running the sale through Amazon should exempt the transaction from taxes.
“This is so wrong,’’ he said.
Forese said proponents of taxing Internet sales, including traditional retailers, are taking a short-sighted approach.
“I would love to go back in time and see how horse and buggy makers tried through lobbyists and government to thwart the way of the automobile,’’ he said, calling it a “natural survival instinct.’’ Forese said online businesses are the wave of the future, and knows many people who have “dug themselves out of unemployment’’ by creating their own presence on the World Wide Web.
Forese conceded that he believes online sales should be taxed. And he believes that eventually will happen.
But he is in no rush to help it along.
“We have a recession that has driven a lot of people to have to be entrepreneurial and create these new businesses,’’ Forese said. And he worried about burdening these businesses with the “complexities’’ of having to figure taxes for customers in multiple states.
Forese said, though, this is bigger than whether it will affect some entrepreneur operating out a garage. He said there might be some opportunities for Arizona to nurture and become home to a major player in the new economy if the state just drags its feet a little longer on the issue. Forese said it’s occurred elsewhere.
“CEOs say that their success was largely due to the fact that government could not keep up with the regulating and taxing something they didn’t understand,’’ Forese said. He said that’s what allowed Microsoft to balloon into the dominant force it now is in the computer industry.
“That’s the ultimate prize we’re looking for here,’’ he said.
Ultimately, Forese said, there will have to be fairness in taxes among different types of retailers.
“I just want to make sure that whatever actions we’re taking as a state we’re being cautious and deliberate and caring more about the health horse (of free enterprise) pulling the wagon than we are about digging our hands into their pocket,’’ he said.
“There’s a trend in government where it gets creative to milk as much money from the free market cow as it possibly can,’’ Forese continued. “It’s detrimental to innovation.’’
Weiers agreed that a federal solution might be preferable — if that were in the offing. He said that should not be difficult.
“If Congress ever had the balls to do what they needed to do, they would say let’s go ahead and enforce what truly is the law,’’ he said. “If it’s coming from a state that you reside in, you’re supposed to collect on it.’’
Weiers also said he had no sympathy for arguments that the Internet companies would be on the hook if a customer did not remit Arizona’s sales tax.
He pointed out that, technically speaking, Arizona does not have a sales tax but a “transaction privilege tax’’ levied on the retailer. He said while merchants are free to pass that along to their customers, the responsibility remains with the seller.
Gov. Jan Brewer is staying on the sidelines, at least for the time being.
“I think that (issue) probably might, at some point, be resolved,’’ she said. “I’m not in a position today to really discuss that.’’
Pressed for how she would want it “resolved,’’ the governor said that the subject has been around as long as she has been an elected official. That goes back to 1982 when she was first elected to the Legislature, though the sales being discussed for taxation at that time were by phone and catalog.
“We know as we are moving into this new century of doing business that, I’m sure, that the federal government will continue trying to address that issue,’’ she said.
Amazon did not respond to requests for comment on the issue. But company officials, at a grand opening of a new company distribution center in Phoenix last month made it more than clear that his company’s decision of where to locate future facilities is linked to a state’s policies on sales tax.
Paul Misener, Amazon’s vice president of global public policy, said the U.S. Constitution established a “federation of states’’ that retained many powers and a federal government that took over some, “including the responsibility of regulating interstate commerce.’’
“Citizens of this country, individuals or companies, are free to choose where to live, and the state and local governments may adopt policies that attract and retain these citizens,’’ Misener said. “We deeply appreciate leaders who respect and appreciate the balance.’’
And Amazon.com CEO Jeff Bezos, in an interview earlier this year with Reuters, said his company would cuts its partnerships with affiliates in any state that requires it to collect sales taxes.
“In the U.S., the Constitution prohibits states from interfering in interstate commerce,’’ Bezos told Reuters, citing that 1992 Supreme Court decision. He said the “right place’’ to fix the issue is with federal legislation.