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31 May 2019   Matthew Benson

Arizona to become 42nd state to address tax equity between in-state and remote retailers

Arizonans for Main Street Fairness thanks Gov. Ducey, Rep. Toma and legislators for reaching deal that levels playing field for Arizona retailers, small businesses

Arizonans for Main Street Fairness, a broad coalition of local and national retailers and community leaders, applauds the passage of legislation eliminating a tax loophole that has placed local retailers at a growing disadvantage with out-of-state, online competitors.

Local retailers have always been required to collect sales tax on product purchases, but Arizona law currently exempts from this requirement out-of-state, online sellers without a physical presence in the state. HB 2757 corrects this fundamental inequity, which brick-and-mortar retailers say poses an increasing threat to their operations as more consumer dollars migrate online.

“Retail sales is a critical component of our economy,” said Michelle Ahlmer, Executive Director of the Arizona Retailers Association. “This legislation will save Arizona jobs by ensuring local retailers are not placed at a competitive disadvantage by virtue of our tax policy. Just as important, HB 2757 streamlines the Arizona tax code so that it’s not overly complex for out-of-state sellers to determine the proper tax to apply upon goods sold to Arizona residents.”

“We’re tremendously grateful to Rep. Ben Toma for taking the lead in negotiating this compromise reform with stakeholders, including retailers, taxpayer advocates and local leaders,” Ahlmer continued. “Most of all, we thank the local small-business owners who’ve rightly argued for years that Arizona law shouldn’t place them at a disadvantage with competitors in other states.”  

HB 2757 exempts micro businesses and hobbyists because it only applies to sellers with at least $200,000 in gross annual sales (a threshold that phases down to $100,000 after three years). The measure is only enforced prospectively and stipulates that tax collection and remittance is the responsibility of the seller, not consumer. Additionally, HB 2757 simplifies the tax code by establishing a single statutory retail base with uniform treatment and definitions statewide. Local governments maintain control of rate-setting.

HB 2757 was made possible by the 2018 U.S Supreme Court decision in the case of South Dakota v. Wayfair, which found that states have authority to mandate that out-of-state sellers collect and remit sales tax on product purchases. Among states with a sales tax, all but three nationally have already taken action to ensure tax equity between in-state and remote sellers.

The tax equity language in HB 2757 earned the backing of a wide coalition, including: the Arizona Retailers Association; Arizona Chamber of Commerce & Industry; Arizona Ace Hardware dealers; Local First Arizona; Walmart; Walgreens; Amazon; Changing Hands Bookstore; Google; Best Buy; Target; Arizona Food Marketing Alliance; Arizona League of Cities & Towns; County Supervisors Association of Arizona; Norwood Furniture; NFIB-Arizona; CenturyLink; Greater Phoenix Chamber of Commerce; ICSC and more.

HB 2757 is now on the desk of Governor Ducey as he considers the proposal along with the rest of the budget package, which he has indicated he supports.