NTU Urges Changes to Arizona E-Retailer Nexus Legislation

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Dear Legislator,
On behalf of National Taxpayers Union (NTU), the nation’s oldest taxpayer advocacy organization, I write to express our opposition to HB 2702. In its current form, the legislation has significant issues which would create a substantial tax compliance burden for e-retailers looking to do business in Arizona. While the legislation has positive elements, further reform is needed before Arizona should consider imposing economic nexus taxes.
HB 2702 comes up short due to its overly complex tax administration framework. In South Dakota v. Wayfair, the U.S. Supreme Court recommended that states join the Streamlined Sales and Use Tax Agreement (SSUTA), an agreement which standardizes rates and administrative definitions to reduce compliance burdens for businesses. Arizona has not done so.
If Arizona does not wish to join SSUTA, it must substantially simplify its tax code regardless. The state took a positive step when it established central administration of its 131 sales tax jurisdictions, but more reform is needed to ensure a sales tax system that is simple for businesses to navigate. For example, cities are still able to maintain different tax bases and tiered rates, and Arizona does not provide sales tax software or vendor compensation to ease compliance.
Arizona’s legislation may also fail to pass constitutional muster since it may discriminate against interstate commerce. HB 2702, as currently written, would subject marketplace facilitators to tax rates that vary by the county or municipality of the purchaser, while an in-state retailer with a brick-and-mortar location would face only one tax rate. The combination of greater compliance burdens and the potential for higher rates for out-of-state marketplace facilitators would put this legislation in constitutional jeopardy should it pass.
Arizona should pursue reforms to these issues before moving forward with such legislation. Not only could its passage cause taxpayer dollars to be wasted in litigation over the bill’s constitutionality, but it would represent a significant and avoidable burden to out-of-state retailers seeking to do businesses within the state. I strongly urge Arizona legislators to vote “NO” on HB 2702 and pursue further reforms to its tax system before imposing new tax compliance burdens on remote sellers.
Andrew Wilford
Manager, Interstate Commerce Initiative
National Taxpayers Union