New Arizona Tax System May Effect Online Retailers In The State

Arizona Seal
Is an online tax on the way in Arizona.

A tax change is coming to Arizona. Some people think the adjustment has to do with the impending Marketplace Fairness Act; other folks reason that the modification is simply about making the state tax code fairer. Broadly speaking, the new tax system will change how cities collect taxes and process business audits. Specifically, it will affect which jurisdictions can collect levies for certain commercial projects.

Change In How Cities Can Collect Taxes & Audit Businesses

Currently, supplies for new construction are taxed  in the city where the new structure is built. Under the new system, however, taxes for supplies will be  charged at the time of purchase for re-modelling and home improvement projects. The League of Arizona Cities and Towns originally opposed the bill, because it only would benefit communities with supply stores, but a compromise was reached: new construction projects will still follow the old tax model. The compromise means that cities without supply stores can still benefit from the economic advantages construction development affords.

In addition, the new Arizona tax code will allow businesses with multiple locations to submit their audit records to one city instead of having to remit information to each region in which they have a physical location.

Why This Change May Eventually Effect Online Retailers

You may be wondering, “Why is a law firm that focuses on Internet business law talking about a tax change that seems to affect general contractors?” It’s because of a potential upcoming federal law – the Marketplace Fairness Act.

In brief, if passed, the Marketplace Fairness Act will allow states to impose and online sales tax. At present, e-tailers only have to pay tax in states where they have a physical presence. If consumers don’t get charged at an online checkout, they are expected to remit payment directly to the state. The Marketplace Fairness Act aims to change this standard. The caveat of the MFA, however, is that only states with “simplified tax systems” can establish an online sales tax.

By changing the way construction supplies are taxed in Arizona, the state is effectively “simplifying” the tax code – which positions AZ to take advantage of the Marketplace Fairness Act.

Potential Effects of the Marketplace Fairness Act on Online Businesses in Arizona

Current case law prohibits e-tailers from collecting sales tax. As such, some experts estimate that Internet enterprises enjoy a 12% advantage over brick-and-mortar stores.

Now, while most Arizonans want to see the growth of both online and offline commerce, the fact that the world is “going digital” should not be overlooked. If Arizona is to become a leading technology hub, it’s wise to make the state attractive to online businesses. Simply put, initiating an Internet sales tax may repel them.

If Arizona is to become a leading technology hub, it’s wise to make the state attractive to online businesses. Simply put, initiating an Internet sales tax may repel them.

Guess we’ll just have to wait to see how this plays out.

Kelly Warner is an Arizona-based law firm – with clients from all 50 states, Canada, Australia and the EU — that handles all manners of Internet and business law. If you are looking for an attorney that fully understands the nuances of today’s digital marketplace, get in touch.

Yes, I Want to Speak with Someone about an Internet Law Issue »