A bill passed last year by the state Legislature requires residents to declare on their tax returns purchases made on goods from out-of-state stores, including online retailers that are based elsewhere in the country.
But Sen. Lori Klein said that she disregarded the use-tax liability line on her income-tax return last year. The Anthem Republican made the remark during a Thursday hearing on HB2629, which would exempt Arizona residents from paying the use tax.
“I saw it last year and I just looked at it and went, ‘Ha! I’m not going to, you know, report.’ So, I mean, not that I would — I mean I don’t think most people realize it’s even there. I mean it was a surprise to me,” she said.
Klein later backtracked from her remark, telling the Arizona Capitol Times that she had no tax liability for out-of-state purchases.
“It’s just that I don’t buy stuff out-of-state that I would have to go back and report,” she said.
Klein made the statement in front of a representative of the Arizona Department of Revenue, who testified before the Senate Finance Committee that eliminating the use tax could mean the forfeiture of up to $30 million in state revenues.
Sean Laux, the department’s lobbyist, told members of the Senate Finance Committee that some out-of-state companies voluntarily collect and remit use taxes incurred by Arizona residents.
The department determined that the state gets between $20 and $30 million a year through the self-reporting line on income-tax returns — revenues that would be lost if the use tax were eliminated.
House Majority Whip Debbie Lesko, the bill’s sponsor, told committee members that she’s heard from constituents who complained that lawmakers passed a new tax when the requirement to declare the use tax liability was added to the income tax return form.
“Last year, we added this line on the (income tax) form so now we’re making everybody criminal if they don’t do this,” Lesko said, adding most people don’t know they’re supposed to self-report their use tax liability.
Lesko said the requirement to self-declare is burdensome as people would have to keep all their receipts and determine whether they had already paid — or not paid — a sales tax.
But Laux’s testimony prompted Sen. Paula Aboud, a Democrat from Tucson, to ask why the state would want to risk eliminating a revenue source.
Sen. John McComish, a Republican from Phoenix, also ultimately voted against the measure.
McComish said he thought the bill was a good idea and he applauded its sponsor for trying to do something about the use tax, which described as a “mess.”
But the revelation from the revenue department that some companies are voluntarily collecting and remitting use taxes to Arizona made him hesitate.
“In an economy where we’re just starting to get our state revenues back on track, I think $20 million or $30 million is not nominal,” McComish said.
But Sen. Rick Murphy, R-Peoria, said people are too focused on the bill’s potential cost to the state.
“Remember, that ‘cost’ is actually people keeping their own money,” he said, describing the current requirement to self-declare use tax liability as complex and can’t be uniformly enforced.
The final vote in committee was 5-2.
But while it received the committee’s approval, the bill faces a tough road ahead.
Sen. Steve Yarbrough, chairman of the Senate Finance Committee, voted for the bill when it was heard in his panel on March 8.
But he said he would probably vote “no” if it stayed in its current form.
“I think it will have tough-sledding at this point,” Yarbrough said, adding he would have to get more details about the department’s estimates before he can be comfortable with repealing the use tax.
Other senators echoed Yarbrough’s hesitation.
“Even though I’m for lowering taxes—that’s a good base philosophy or rule—right now we got one foot in the grave and one on a banana peel,” said Sen. Don Shooter, chairman of the Senate Appropriations Committee.
Shooter was referring to Arizona’s improving but still-shaky fiscal house.
“So I’m going to look at anything that has that much impact really hard,” he added.