I am president of RockAuto, an online auto parts store in Madison, Wisconsin.  My family and I started the business in 1999, offering “all the parts your car will ever need” to everyone from novice “DIYers” to professional mechanics worldwide.  

Since 2019, when a new law taxing out-of-state businesses based on “economic nexus” took effect, RockAuto has paid Arizona sales taxes even though we never have had an Arizona store.  

Unsatisfied, the Arizona Department of Revenue (ADoR) recently convinced the Court of Appeals we were physically present in Arizona before 2019 without knowing it and owed tax under the old law.  Somehow, every Arizona factory and wholesaler selling parts to us became our branch office when we asked them to ship directly to our customers.  Address labels became stores, refrigerator magnets became salespeople and, magically, RockAuto was in Arizona. 

No previous court case (including ours in the Arizona Tax Court) found a retailer “physically present” without employees or assets or someone making in-state contact with customers.  ADoR’s own publications say “drop-shipping” from Arizona suppliers does not create tax liability.  But ADoR persists in demanding six years of taxes (which we didn’t collect from customers) plus interest and penalties — far more money than we earned in 20 years selling auto parts to Arizonans! 

We’ve petitioned the Arizona Supreme Court to review the case.  The Arizona Tech Council and State Representative Michael Carbone have written letters pointing out tax laws come from the legislature, not ADoR’s imagination.  Since Governor Hobbs did not create this situation (it began before she took office), thousands of our Arizona customers have appealed to her to move the state in a more positive direction by restraining ADoR.  Some of them said:

“I live in a rural area of Arizona and quite often RockAuto is the only
source of automobile parts available within a reasonable time frame.”

“As an accountant by trade who has experience in sales tax law, this is blatantly incorrect.” 

“I drive a 1998 auto and I need parts quite often due to the mileage and year. Competition helps keep the parts business competitive and prices lower. Don’t reduce the numbers of parts businesses in Arizona for all of us retired people.”

“The state’s tax case is absurd and unfair. It could easily affect other online retailers we depend on.”

Empowered by the appeals court, ADoR has not responded.

To protect the livelihoods of our families from future attack, we’ve stopped buying from Arizona suppliers.  We may be forced to stop selling to customers in Arizona.  Dismantling relationships which took decades to build is heartrending.  But we can’t work for free or live in fear of the next random, retroactive ruling.  

Other online retailers that bought from Arizona suppliers in past decades or today  (even if they don’t meet the “economic nexus” threshold) could be next on ADoR’s hit list.  Do you or your business depend on any of them?