Arizona seeks economic nexus for remote retailers and marketplace facilitators
- Feb 27, 2019 | Gail Cole
Update 5.29.2019: House Bill 2757 has been sent to the governor, who's indicated he'll sign it. It establishes economic nexus and requires marketplace facilitators to collect and remit tax on behalf of sellers as of October 1, 2019.
Back in 2016, the Arizona Department of Revenue ruled that online marketplace facilitators with Arizona nexus were responsible for collecting and remitting Arizona sales tax.* Now the Arizona Legislature is looking to codify that rule. It’s also seeking to impose a sales tax collection obligation on remote retailers with a certain amount of economic activity in the state.
The Department of Revenue ruling came years before the Supreme Court of the United States overruled a long-standing physical presence rule, thus allowing states to impose a sales tax collection obligation on businesses with no physical presence in the state (South Dakota v. Wayfair, Inc., June 21, 2018). Long eager to increase remote sales tax collections, Arizona lawmakers are jumping to take advantage of their newfound right to tax remote sales.
Economic nexus for remote retailers and marketplace providers
House Bill 2702, introduced February 13, 2019, seeks to establish economic nexus. Under it, any person that conducts business in Arizona would be liable for TPT on sales of tangible personal property if, in the current or previous year, the person:
- Has more than $100,000 from gross proceeds of sales or gross income derived from Arizona transactions;
- Engages in at least 200 separate transactions with purchasers in Arizona;
- Is a marketplace facilitator with more than $100,000 in gross proceeds of sales or gross income from transactions with Arizona purchasers — on its own behalf or on behalf of at least one marketplace seller; or
- Is a marketplace facilitator with at least 200 separate transactions with Arizona purchasers — on its own behalf or on behalf of at least one marketplace seller.
Calculating the tax base
The $100,000 sales/200 transactions threshold would be based on all sales the marketplace facilitator facilitates in Arizona on behalf of marketplace sellers, if the seller isn’t an affiliate of the facilitator.
A marketplace facilitator that pays TPT on behalf of marketplace sellers under HB 2702 would be required to report it separately (on a separate return) from the tax due from the facilitator’s own transactions, or from transactions by affiliates of the facilitor.
A marketplace facilitator would also be required to provide documentation to the sellers that the facilitator paid and remitted the applicable tax to the department.
As for liability, the department would only audit marketplace sellers if a facilitator seeks relief from liability on the grounds that it received inaccurate or incomplete information from a seller.
Will it pass?
The measure has bipartisan support; it was sponsored by 15 Republicans and 10 Democrats, and was quickly approved by the House Ways and Means Committee. If approved, it will take affect on the first day of the month following the effective date of the act.
More than 30 states have adopted economic nexus to tax remote sales, and more than a dozen states have imposed sales tax collection requirements on marketplace facilitators. In each such state, the exact requirements for remote sellers and marketplace providers differ. See an up-to-date list of states’ remote sales tax laws to learn more.
*Arizona does not have a traditional sales tax; it imposes a transaction privilege tax (TPT) on businesses for the privilege of doing business in the state. However, the TPT feels like a sales tax because businesses usually pass it on to consumers.