Arizona tax changes sought for online sales
PHOENIX — A special gubernatorial panel is recommending changes in how the state and cities decide what's taxable as a precursor to being able to assess Arizonans for their online sales.
The committee proposes to limit — but not eliminate — the ability of cities to levy their taxes on items that are not taxed by the state. While the most well-known of those is the tax some cities levy on grocery store purchases, other differences range from commercial leases to advertising.
And it also wants to ban cities from adopting their own versions of the Model Cities Tax Code, which is supposed to be the starting point for all communities.
Michael Hunter, an adviser to the governor, said such simplification will make life easier for companies doing business in more than one jurisdiction.
But Hunter said the move likely would make Arizona ready to start taxing sales of items on the World Wide Web if and when Congress finally gives states the go-ahead.
It will take action from Washington. The U.S. Supreme Court ruled nearly two decades ago that a company must have a physical presence in a state to be required to collect sales taxes. So a computer purchased from Apple's website is taxable because it has stores here; a computer from Dell is not because it has no retail shops in Arizona.
Legally speaking, Arizonans are required to compute what they would have otherwise paid and send it to the state as "use tax.’’ But that provision of law is little enforced against individuals and widely ignored, which is why states want online retailers to collect it for them, the same as local brick-and-mortar shops.
Hunter said several members of Congress are proposing measures that would require online retailers to collect the sales taxes applicable in the state where the item is being shipped. But he said there are conditions.
“The version we understand to be out there now ... requires a pretty high degree of simplification code, central administration of the tax code, a uniform tax base,'' he said.
The idea is to ensure that if the retailers are required to begin collecting taxes that they're not wrestling with whether the item is taxable in one city in Arizona and not in another.
More to the point, only states that have a simplified tax code — and don't require retailers to have to deal with each community's variations — are likely to get the go-ahead from Congress to mandate that those selling items to their residents add on the tax levy.
There are three key versions of federal legislation pending. Each has slightly different provisions, including whether small retailers are exempted from the requirement.
But two make the ability of a state to levy its taxes conditional on having adopted the Streamlined Sales and Use Tax Agreement. Only 21 states have done so thus far, not including Arizona.
The third has its own language of how states must simplify their laws to allow taxes of online sales.
Hunter said there are other reasons for Arizona to simplify its tax code and reduce local options.
“When you compare Arizona's sales tax system with many other states ... there are many more hoops that your average small businessman — or big businessman — has to go through just to comply with the tax code.”
He said research shows that complying with tax laws in other states is “really simple.''
“You can do it on one form. In Arizona, it takes a ream of forms if you're in multiple jurisdictions.''
Hunter said it's more than just an issue of having to interpret multiple sales tax codes. He said retailers, both online and with stores here, don't want to worry about what happens when one community decides to take a closer look.
“We have more auditing than we need to have, more ‘gotcha' moments occurring in an audit because taxpayers don't understand differences between jurisdictions.”
That goes to another issue. Hunter said even if each and every one of the cities used the exact same language in determining what's taxable, “you're still going to have different answers from different auditors'' from different cities and, ultimately, the state itself.”
“If a tax auditor is going to look at your sales tax remission, then you have multiple opportunities because of the complexity of our tax compared to other states, where that auditor — or a team of auditors, all representing different jurisdictions, different government entities — all may interpret the tax code differently,'' he said, regardless of whether each community's tax code is identical to another or different.
Hunter conceded, though, that there are “resource issues'' if taxes will be handled centrally by the state Department of Revenue for all cities. “They have lost a lot of auditors in recent years,'' he said.
Gov. Jan Brewer, who formed the panel earlier this year, was noncommittal about whether she will adopt the recommendations and ask the Legislature to make the necessary changes. Press aide Matthew Benson said his boss is interested in tax simplification but wants to study the specifics before making any decisions.