Now, lawmakers are telling Amazon that since they have distribution centers here, they should be required to collect and pay sales tax to the state.
The mixed message is the latest chapter in a long-standing battle between online giants and brick-and-mortar retailers — and one that isn’t likely to be settled any time soon.
In encouraging the company to expand, the state handed it a $2 million federal stimulus-funded job creation grant. But that incentive was dwarfed by a $53 million bill the state Department of Revenue sent Amazon this month for uncollected sales tax from March 2006 to December 2010.
And now, legislation in the Senate would ensure that Amazon collects sales taxes from Arizona consumers.
SB1338 would require any retail company with a physical presence in Arizona — including warehouses, distribution centers and fulfillment centers — to collect sales tax on purchases made by Arizona residents.
The legislation squarely targets Amazon — the only known online retailer with a presence in the state — and is already being dubbed “the Amazon tax.”
To supporters, the bill is merely a clarification of the 1992 Supreme Court decision that says states may only collect sales tax from companies that have nexus in the state. They argue that warehouses and distribution centers, not just retail stores, establish that presence.
But to opponents, the clarification amounts to a sort of hypocrisy.
“We’re basically saying to them, ‘ha ha, we got you here, now we’re going to levy a new tax requirement on you,’” said Rep. Jeff Dial, R-Chandler. “It’s a terrible idea.”
Arizona law currently requires residents to pay use tax on purchases they make from online retailers, but the onus is on the taxpayer to report the tax that they owe. However, the law has proven to be little-known and largely unenforceable.
SB1338, sponsored by Sen. Al Melvin, R-SaddleBrooke, would require Amazon to charge Arizona residents sales tax at the time of their order, a move that the e-retailer has fought bitterly in other states.
Lobbyist Don Isaacson, whose firm is representing Amazon, accused the state of singling the retailer out.
“This bill applies to one company, and one company alone, and should be invalid and rejected on that basis,” Isaacson said during a Senate Commerce and Energy Committee hearing. The bill passed the committee by unanimous vote this week.
Matthew Benson, spokesman for the governor’s office, told the Arizona Capitol Times that Brewer supported the Department of Revenue’s decision to collect on what is rightfully owed.
“Certainly, we don’t want to see (Amazon leave), but every taxpayer is obligated to pay what they owe,” Benson said.
Traditional retailers argue the current tax code hurts small businesses by putting them at a competitive disadvantage, said Michelle Ahlmer, executive director of the Arizona Retailers Association.
According to a study commissioned by the group and conducted by the economic consulting firm Elliott D. Pollack and Company, if the bill was signed into law, 24.3 percent of Amazon’s sales to Arizona residents will shift to brick-and-mortar stores in the state.
That may be a win for the local retailers, but Isaacson said it would be a drawback for Amazon, which could lead to layoffs.
Had the bill been law before Amazon decided to come to Arizona or expand its presence, he acknowledged that the decision may have been more difficult.
“Obviously, major companies look at the tax environment, and that, I’m certain would be a consideration in the decision,” he said.
The bill puts business groups like the Arizona Chamber of Commerce and Industry in a sticky spot.
Chamber spokesman Garrick Taylor acknowledged that the law could be interpreted as being anti-business, and could tarnish the business-friendly reputation that the state has been working to build and project.
But in the end, the Chamber is coming down on the side of the local businesses.
“We want to attract businesses to the state, we want them to continue expanding and creating jobs,” he said, “but not at the expense of our small retailers.”
But that approach may be a difficult sell to the GOP-dominated Legislature, particularly in an election year.
House Majority Whip Debbie Lesko, R-Glendale, has two bills that are in direct opposition to Melvin’s. One would repeal the use tax completely; the other would do away with the requirement that individuals report any online purchases on their tax forms.
The reporting requirement was passed last session, and has already sparked outcry from constituents who thought the Legislature had passed a new tax.
The furor drove Lesko to introduce her bills, and the one to repeal the use tax has already passed a House committee. Her reason is simple: Keep the tax burden as low as possible so people keep more money in their pockets.
If her fellow Republicans end up having to choose between one bill to eliminate a tax, and another to enforce it, Lesko said she didn’t think that SB1338 would fare well.
“I don’t think any of us would be re-elected if we passed it,” she said.
But Melvin and his allies argue that the ultimate question is one of fairness in the tax code. Local shops have to collect and report sales tax from their customers, and so should Amazon.
And if Amazon sees that as unfair to them, well, tough.
“If they open operations in Arizona, we’re going to welcome that fact and sing their praises for doing it,” said Rep. Justin Olson, R-Mesa, who co-sponsored the bill. “But that doesn’t mean that the tax laws that apply to Arizona businesses are not going to apply in that case.”
The e-retailer has taken staunch opposition to other attempts at tax legislation in the past. When Texas presented them with a $269 million tax bill in 2010, Amazon promptly closed one of their Dallas-area warehouses.
But Rep. J.D. Mesnard, R-Chandler, a co-sponsor of the online sales tax bill, said he thinks the tide has turned. A federal decision on the issue seems imminent, if overdue, and other states have enacted or are considering similar legislation as Arizona.
“If they see this as a slap in the face, that’s unfortunate,” he said. “But even if they’re upset, where are they going to go?”
Indeed, Isaacson said he didn’t know of any plans or threats made by Amazon to pack up and leave if the bill became law.
Opposition to the bill isn’t only coming from people supportive of Amazon, however.
Rep. Tom Forese, R-Gilbert, said he’s more worried about the entrepreneurs who saw an online startup as the way to get the biggest bang for their limited capital buck.
While Amazon may be able to adapt and overcome any new tax hurdles, he said he worries that the smaller online businesses can’t.
“I’m not worried about Amazon — they’re big boys, they can take care of themselves,” he said.