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Arizona: Online Sales Tax Could Lead to Income Tax Rate Reduction


 Who needs shopping carts now that we can shop online?

Federal lawmakers seem no closer to passing internet sales tax legislation than they have ever been. The Marketplace Fairness Act of 2013 (MFA) is still languishing in the House after being approved by the Senate in May 2013. In its place, House Judiciary Committee Chairman Bob Goodlatte (R) is circulating drafts of the very different Online Sales Simplification Act of 2015, which has been strongly criticized by numerous state lawmakers. Checkmate?

Nonetheless, Arizona lawmakers are preparing for the eventuality that the federal government will one day grant states the right to tax out-of-state vendors, such as internet retailers.

HB 2061 seeks to create an income tax rate reduction for transaction privilege and use taxes on internet sales. It would take effect if any federal law expands the state’s “authority to require out-of-state retailers to collect and remit to this state transaction privilege and use taxes on purchases made by residents of this state.”

Under the bill, the Arizona Department of Revenue would “determine the amount of additional revenue” remitted to the state by remote retailers on purchases made by Arizona residents, after the first full year of the tax. It would then “determine the amount that individual income taxes may be reduced in the following taxable year in order to decrease individual income tax revenue” by the amount specified by law.

According to J.D. Mesnard, the Republican author of the bill, “If we are going to change that policy position, it’s a de-facto tax increase. And I don’t think that’s a good policy.”

Yet not everyone agrees that an online sales tax would be a tax increase. Arizona residents actually owe use tax when they purchase taxable goods for use in Arizona without paying sales tax, whether they buy online, from a catalog, or while traveling in another state. However, use tax is difficult to enforce. A line for use tax was added to Arizona income tax forms in 2011; in 2012, it was removed after “a public outcry.” If you want to remit use tax in Arizona--as required by law--you have to take the proverbial bull by the horns.

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photo credit: Shopping Cart via photopin (license)


Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.