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Arizona Lawmakers Debating Approach To Collecting Online Sales Taxes

MARK BRODIE: Arizona is among a handful of states that has not adjusted its tax laws to reflect the U.S. Supreme Court's ruling last summer in the South Dakota v. Wayfair case. That decision generally allows states to require online retailers to collect and remit sales taxes. But a bill in the state House would change that, and — among other things — set up standards for how much income a company brings in and how many transactions it makes in Arizona to determine if it needs to collect taxes on online sales. That bill is supported by a group called Arizonans for Main Street Fairness. John Arterburn is a member. He owns Pinnacle Peak Ace Hardware in Scottsdale.

JOHN ARTERBURN: In the U.S., there are 45 states that collect tax. Of those 45, 37 are already doing this. That's 82 percent are already doing it. This is a tax that we collect and submit, you know, here in our store, as well as several other retailers, people like Amazon.com, that's and our retail association. So, it's something that we pay. In my case, I'll have people come in my store, and they'll have a problem, and they're not sure what it is. So, I'll work with them for 20 minutes or so determining what it is, the root cause, what they need to fix it, the products, and how to do it. And from time to time they'll pull their phone out, and go, 'I can get those same parts on the internet without paying tax. And can you either lower your price or defer the tax?' And, you know, when I say .. 'We can't do that,' they leave. So, I've just provided ... troubleshooting process for them, and those sales dollars aren't coming here to support the 27 families that my store supports, or the state infrastructure — the police had come to my store when I have a burglary alarm or the teachers or professors here in the country.

BRODIE: Do you have a sense of how much money you might be losing to online sales?

ARTERBURN: I don't. I know, you know, it occurs, and I talk with other people where it occurs ... I don't know, but I know you know we will see more people staying in the store, you know, when that's rectified.

BRODIE: Do you feel as though the economic nexus that this bill sets up, in terms of the amount of money a business has to make in the number of transactions, is that the right approach? Are you happy with the way this bill would set up a system to collect online sales taxes?

ARTERBURN: Well, I think this bill would work, because they've got provisions in there for micro-sellers — people you know who do limited number of transactions , and things like that. So they've got provisions so that when people get to a certain level, then they have to start collecting and remitting the tax. So I think they've been thoughtful in that manner.

BRODIE: What do you make of the idea of instead of setting this up now, setting up a legislative study committee — there's another bill that would do that — have folks who are knowledgeable about this issue really try to hash something out. And then maybe next year, set up the actual system to start collecting online sales taxes.

ARTERBURN: Well, there's a professor from the University of Arizona in the College of Law, a tax expert, who's look at this, and has said that, you know, he doesn't see any issue with the bill. The Amazon people have had all of their legal people look at it. They saw no issue. We've talked with our corporate people at our headquarters back in Oakbrook, and they don't have any problem, you know, dealing with remitting taxes and all the other states — even some of the states like Colorado. Which, according to our attorney was saying, has relatively significant rates or complexity, and they work through all that. And he said here, you know, in Arizona they just register you know all the different municipalities, you know, as they occur.

BRODIE: So, it sounds like you don't see much point in waiting around. You just want to get this done.

ARTERBURN: Yes, exactly. I've been waiting, you know, 15 years for something like this to happen. And I think you know a lot of other people have as well.

BRODIE: Let's say that this bill passes and becomes law. Ultimately for your business what will the bottom line be like — what will the ultimate impact be, do you think?

ARTERBURN: It'll be a fair playing field. It'll be the competition that we're used to all the time with all the players — brick-and-mortar and online. It'll just be a more consistent process.

BRODIE: John Arterburn owns Pinnacle Peak Ace Hardware in Scottsdale and is a member of the group Arizonans for Main Street Fairness. It's advocating for a bill in the Legislature to set up a system for collecting online sales taxes. But as we referenced, there's another bill also in the Legislature that would set up a study committee to look into the issue and report back to lawmakers and the governor in December. That's the approach Chad Heinrich, with the National Federation of Independent Business, favors.

CHAD HEINRICH: Well, Mark it's pretty simple. So, the reason that the NFIB and our small and independent business owners support a study committee approach is, frankly, we are living in Arizona, which is known nationally as — we're actually in a group of about four states which are known to be have the most complex sales tax laws in the country. And we believe that a study is needed to avoid constitutional problems with any approach that we might take in a haphazard way.

BRODIE: Do you have problems with the approach taken in the bill moving through the Legislature that would set up a system for taxing online sales?

HEINRICH: Yes. And, you know, there are several concerns that we share with others in the business community. So, just a little background, the Wayfair decision essentially overturned part of the quill decision which was made back in the '90s. So on a national level, at a state-by-state level, we've been living under that decision from the '90s for several years. In that time frame, other states have made significant efforts to simplify their sales tax systems — all in preparation for someday maybe being able to overturn that Q uill decision. Arizona hasn't been doing that. And there are several areas within Arizona's existing laws that would put us in legal jeopardy if we moved too quickly and didn't make some corresponding changes.

BRODIE: Ideally, do you wish of a state maybe had been working on this? As you say, a number of states have adopted laws that allow them to collect sales taxes from online sales. Do you wish Arizona maybe had been working maybe on that a little bit earlier and could have been doing something already?

HEINRICH: Well, yes, of course we do. And 'we' — meaning the business community — we have historically worked on simplification where we can. The last major effort in the state of Arizona to do a small piece of simplification was done during the Brewer administration in 2013. That brought us in line with one checkbox out of about four within the Wayfair case, where we do have a single state level tax administration and audit. And just as an example, when we passed that legislation, because of the complexity within our existing system, it took three years to implement. So taking a leap to what is proposed within the meeting the court's requirements and Wayfair, could be a significant undertaking. And we don't want to do that rashly, we want to do that in a measured approach and study the effort before we adopt anything.

BRODIE: One of the big provisions of the bill that would set up a system to collect online sales taxes sets up an economic presence model for a particular business based on the amount of money they bring in from sales and the number of transactions that a particular company might make. Do you think that is the right approach — to look at what companies maybe would be subject to having to collect online sales tax, or is there something else that you would like to see in that place?

HEINRICH: So, in the legislation that that is proposed, that is one of the tenants from the South Dakota law that they are attempting to replicate in the Arizona bill. So, the threshold that South Dakota adopted is what the Supreme Court has, so to speak, 'blessed.' So, any variance from that could be up for question. And I don't believe we're exactly mimicking with South Dakota doing in that regard. So, even that decision would be something that we would want to bring to a stakeholder group, want to bring to us legislative study committee, to make sure that we are confident that the measure that we put in will be viewed favorably if challenged.

BRODIE: Have you heard from any of your members who are concerned about continuing to wait on this and the possibility of them, sort of, being undercut by bigger retailers or out-of-state retailers who, you know, maybe have different ways that they collect their taxes?

HEINRICH: The issue of parity with brick-and-mortar versus online sales is definitely a concern. And we do not oppose that aspect of the bill. One item that's been discussed is the inherent tax increase that this would be for Arizonans. And small business has a little bit of an interesting viewpoint on that, because we don't disagree that the state has the choice if they want to tax an Arizona consumer who's purchasing something from an out-of-state vendor. But we do believe that the increased revenue that the state is going to see should be recognized. And we should be able to see some reforms and simplifications within the small-business community to make business easier to do with the state, because we're effectively collecting those taxes for the state.

BRODIE: Chad Heinrich is with the National Federation of Independent Business, which supports setting up a study committee to look into how best to set up a system to collect online sales taxes. We'll post links to both bills — House Bill 2702to set up the system to collect the taxes and Senate Bill 1155 to set up the study committee at theshow.kjzz.org.

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Mark Brodie is a co-host of The Show, KJZZ’s locally produced news magazine. Since starting at KJZZ in 2002, Brodie has been a host, reporter and producer, including several years covering the Arizona Legislature, based at the Capitol.