• Arizona
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Dear Chairman Weiers and Members of the Committee:

     On behalf of the National Taxpayers Union’s 8,300 members in Arizona, I urge you to oppose House Bill 2551, a bill that includes language that would tax out-of-state online retailers through their in-state marketing affiliates.

     States that have attempted to prey upon online retailers beyond their borders through the  “affiliate nexus” route have not raised the desired revenues. In fact, North Carolina officials report that they are not keeping track of collections from their tax scheme. Additionally, Rhode Island’s tax administrators say that their treasury has actually lost revenues following enactment of the tax. What these policies have done is impose high costs on the states through litigation and lost business activity. Both North Carolina and New York have been sued over this issue and the litigation in New York continues to this day. Recently, a federal judge in Colorado temporarily enjoined the state’s requirement that online sellers report use tax obligations. Several major online retailers have also terminated their affiliates programs in Colorado and Rhode Island due to those states’ affiliate nexus and sales and use tax-reporting requirements. Furthermore, retailers have announced their intention to terminate their marketing programs in Illinois if the state implements affiliate nexus legislation now on the Governor’s desk. If HB 2551 becomes law, Arizona’s 1,300 affiliate marketers could suffer the same fate and the state could lose the $3.7 million in tax revenue of various kinds that affiliate marketers paid in 2009. A loss of business activity that shrinks the tax base is the last thing any state needs during this time of economic uncertainty.

     Instead of looking for creative ways to levy new taxes, Arizona officials could pursue efforts to better educate consumers about current tax rules. For example, California’s Board of Equalization has estimated that a letter campaign reminding taxpayers they may owe use taxes for Internet purchases will help revenue from these activities to grow to $183 million in 2011, $367 million in 2012, and $600 million annually by 2013. Alabama has tested a similar letter campaign with stunning success, including instances of taxpayers voluntarily sending the state checks for several thousand dollars.

     Arizona’s government faces serious fiscal challenges in the months ahead and needs to undertake equally serious reforms, especially reforms to its bloated state budget. The Commerce Committee need not, and should not, add to the tax burden by imposing a new tax on online shopping through affiliate marketers. Therefore, our members hope you will reject HB 2551.

Sincerely,

John Stephenson
State Government Affairs Manager

CC: Speaker Kirk Adams