2012-07-20



Will Arizona soon be a state with a lot of new online sales taxes? And if so, will it actually help or hurt the state economy?

Arizona has long enjoyed a solid reputation as a business-friendly and tax-payer-friendly state. But that all may change if certain interest groups succeed in their quest to have legislation passed that will result in the addition of several online sales taxes. Currently, two separate online tax efforts are under way in the Grand Canyon state that involve online retailers, like Amazon.com, and travel booking websites, like Expedia.com. Moreover, talk of a federal e-book sales tax is beginning to gain interest.

Arizona Retailers Pushing For “Amazon Tax”

Several states, including California and Illinois, have already implemented what is commonly known as an “Amazon Tax” — which basically says that online retailers must charge tax for online purchases. Usually how it works is that a state passes a law which makes affiliate marketers count as  “a presence” in the state — which means the umbrella company has to collect an online sales tax. Following the trend, Arizona brick-and-mortar retailers are gearing up for an extensive lobbying effort to have all retailers — both online and off — subject to the same 6.6% sales tax.

Companies that operate brick-and-mortar stores are already required to charge online taxes, and they’re tired of the disparity. That being said, there is extensive proof that these “Amazon Taxes” usually result in decreased tax profit for the state, not an increase. How? Quite simply, the mega e-tailers simply disallow affiliates from any state that choses to implement the additional tax. For example, Illinois, after implementing an Amazon Tax, saw their tax revenues drop from $139 million to $127 million in one year’s time.

Governor Brewer’s Office has remained relatively quiet on the issue, but did express their current belief that a nationwide solution would most likely be the best solution; the sound logic being that additional taxes could drive business out of the state – including the arguably profitable Amazon “fulfillment centers.” But the executive director of the Arizona Retailers Association, Michelle Ahlmer, vowed that her members are “not going to be OK with that” position.

Speaking Of Amazon – There’s Still That $53 Million Dollar Tax Litigation Case Looming

While retailers state-wide rally together, litigators are currently hashing out a tax deal with Amazon.com for their 2011 stake. According to state officials, the e-commerce behemoth still owes $53 million dollars in unpaid taxes. As you’d imagine, Amazon doesn’t feel they do. So the lawyers for both parties are hashing it out.

Due to the nature of the Amazon tax case, some feel that messing with the tax code at this juncture isn’t a wise move. As Michael Hunter, the Governor’s adviser on tax matters, explained, changing the statutes now could jeopardize the state’s position in the pending Amazon tax lawsuit. Hunter did say, however, that he is willing to hear and consider opposing views.

Arizona Cities Looking To Establish Stricter Tax Rules For Online Travel Websites

Another area of Arizona tax contention has to do with online travel booking sites like Expedia, Priceline, Orbitz and Travelocity. The issue revolves around the fact that these sites pay a certain amount to the hotels for a listing, but charge the customers’ a slightly higher rate. It’s how they make money. Currently, though, travel sites have been paying taxes based on monies paid to the hotels, not the price the consumer pays.

Cities claim they would benefit if travel sites paid on the higher rates, and claim that not doing so it’s robing government coffers of over $8 million annually. As such, several municipalities around the state have banned together to bring a tax lawsuit against these online travel businesses. Participating cities include, Phoenix, Tempe, Scottsdale and Tucson, among others.

“The city has to make sure that people pay the appropriate amount of taxes,” explained Phoenix Mayor Greg Stanton. “It’s not fair to mom-and-pop businesses that do pay the fair amount that there would be any exceptions just because you’re working in an online environment.”

But Joseph Rubin of the Interactive Travel Services Association cautions that lawsuits like the Arizona cities claim usually end up being a “fruitless waste of taxpayer funds.” And he may have a point, because out of the 27 lawsuits of these types that have been filed nationwide, only 7 resulted in favor of the city. Moreover, Rubin warns that levying this higher tax standard could hurt the state travel industry more than it helps city budgets.

Is An E-Book Tax On The Way Too?

Paper-books are to CDs as e-books are to MP3s. Now think about the last time you bought a CD. According to respected statistical experts, Deloitte, in the United States alone, e-book revenues are expected to reach over $3 billion in the next three years. As such, national book sellers, who still operate under a traditional model, are urging officials to establish a national e-book tax.

State laws regarding digital downloads vary greatly. But Carolynn Iafrate Kranz, chief operating officer at Industry Sales Tax Solutions, points out that “we’re starting to see more states taxing digital content.” To illustrate the disparity, Connecticut is among many states that are currently weighing a 6.35% sales tax on all digital downloads, but other jurisdictions, like Texas, Arizona and Maine seem to be relying on existing “tangible personal property” statutes to deal with the question of taxing digital downloads.

What’s Next?

According to a recent report in The Wall Street Journal, there has been a shift among  anti-tax governors; they’re now easing their no-more levies stand and warming up to online sales taxes.

At the risk of sounding wishy-washy, though, I think it’s too soon to say whether or not any of these proposed new taxes are definitively bad or good, or whether or not they really have a shot at passing in Arizona, where the governor’s office has given all indications that the best solution is a federal solution.

And let’s face it, one’s own interests will dictate one’s opinion on the matter. A brick-and-mortar retailer is more likely to support an online sales tax, as they feel it will level the playing field; an online entrepreneur, however, most likely feels the opposite, since the absence of an online levy means less overhead for Internet-based businesses, which arguably frees up more money for job creation.

So the question really at hand is whether or not Arizona politicians – and ultimately residents – want to cater to the tech-friendly or traditional business models. And as such, only one thing is certain at this point: we’re bound to hear a lot from both sides of the argument over the next several months.

 

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