A new Arizona tax change is on the way. Some people think the adjustment is linked to the impending Marketplace Fairness Act; other folks say it’s just about simplifying the State’s tax code. Whichever the case, the new system changes how cities collect taxes and process audits. Specifically, it will affect jurisdictions’ ability to collect levies for commercial projects.

Change In How Cities Can Collect Taxes & Audit Businesses

Currently, new construction supplies are taxed  in the city where the structure is built. Under the new system, however, taxes for supplies for re-modelling and home improvement projects will be  charged at the time of purchase.

The League of Arizona Cities and Towns originally opposed the bill, because it only benefited communities with supply stores. But they reached a compromise: New construction projects would still follow the old tax model. The compromise meant that cities without supply stores could still benefit from the economic advantages construction development affords.

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

Why The New Arizona Tax Code May Eventually Effect Online Retailers

You may be wondering, “Why is a law firm that focuses on Internet business law talking about general contractors’ taxes?” It’s because of the Marketplace Fairness Act.

In brief, if passed, the Marketplace Fairness Act will allow states to impose online sales taxes. At present, online retailers are only taxed 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

Some experts estimate that Internet business enjoy a 12% “no-tax” advantage over brick-and-mortar stores.

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 have to wait to see how this plays out.

Kelly Warner is an Arizona-based Internet law firm – with clients from all 50 states, Canada, Australia, and the EU — that handles all manners of online business law.