Arizona has handed Amazon.com a $53 million bill for uncollected sales taxes -- the latest sign that the state is getting tougher on untaxed Internet commerce at a time when it's also trying to encourage online distributors to set up operations here.
At issue is whether cash-strapped states should collect taxes on online sales and whether doing so will even the playing field between online marketers and those with a bricks-and-mortar retailing presence -- companies that must collect taxes.
Consumers have a stake in the outcome. In a related move, Arizona recently added a line on its individual income-tax forms for 2011 asking taxpayers here to declare online, out-of-state and other purchases on which sales tax wasn't collected. Another 25 states and the District of Columbia also have self-reporting lines.
In a Wednesday filing with the Securities and Exchange Commission, Amazon disclosed that Arizona issued the assessment covering untaxed transactions from March 1, 2006, through Dec. 31, 2010. The bill includes tax and interest on behalf of the state and certain, unspecified cities. Arizona's sales tax, technically called a "transaction-privilege" tax, carries a rate of 6.6 percent.
Anthony Forschino, a spokesman for the Arizona Department of Revenue, declined to comment on the levy, citing taxpayer-confidentiality issues.
Amazon, the taxpayer in question, vowed to challenge the bill. "We believe that the assessment is without merit and intend to vigorously defend ourselves in this matter," the company said in its SEC filing.
The Arizona assessment came 14 months after Texas billed Amazon $269 million in uncollected sales taxes, interest and penalties from December 2005 to December 2009. In its SEC disclosure, Amazon vowed to challenge that bill and revealed that the SEC recently closed an investigation into the matter, without disclosing the consequences of that probe.
Amazon said the disputes with Arizona and Texas could materially affect its business, operating results, financial position and cash flows, depending on how they are resolved.
While she is aware of the tax bill to Amazon, Gov. Jan Brewer is not taking a position on the agency's action, her spokesman said. Matthew Benson said the decision to bill Amazon was the Revenue Department's. Brewer, he said, does not take a position on decisions affecting individual taxpayers. The governor, he said, doesn't have all the pertinent information needed to make such decisions.
Meanwhile, state Sen. Al Melvin, R-Tucson, last week introduced a bill that would tax online sales of any company with a warehouse, distribution center or similar place of business in the state. Senate Bill 1338 has the support of the Arizona Retailers Association. The Republican backers of the bill have said they view it as a tax-equity issue, noting that brick-and-mortar retailers have to pay sales tax, while online retailers are not pressed to do so.
The bill has yet to get a hearing and has been assigned to two committees, which makes passage more difficult because it would have to pass two hurdles before facing a Senate vote.
Norm Moore, who represents Amazon at the Legislature, said the firm has not yet taken a position on the Arizona legislation. But generally, he said, Amazon is working for a uniform federal law on online taxation, rather than having to deal with a welter of laws that differ from state to state.
Arizona has been able to attract Internet businesses such as Amazon in part because it hasn't required online retailers to collect state and city sales tax. Other benefits to locating distribution and other facilities here have included inexpensive commercial real estate, cheap labor and relatively close proximity to the ports of Los Angeles and Long Beach, where a substantial amount of Asian imports are offloaded.
Amazon, the nation's leading online retailer, has four distribution facilities in the Phoenix area, all in the West Valley. The centers store items available for sale on Amazon.com and process, package and ship those orders. Amazon has said its total investment in the Phoenix area is about $150 million.
The four facilities employ hundreds of workers, mostly in unskilled, lower-paying positions. Much of the work is seasonal, available mainly during the holiday shopping season from October through January.
In 1992, the U.S. Supreme Court ruled that a state can't force online or mail-order retailers to add sales tax if those retailers have no physical presence in the state. Kevin McCarthy, president of the Arizona Tax Research Association, said there's a question about whether Amazon's fulfillment centers here should be considered physical presences.
"They developed a corporate structure that they felt exempted them from sales taxes," McCarthy said. "I assume the Department of Revenue does not agree with Amazon's corporate structure."
The tax assessment on Amazon comes at a time when Arizona is raising consumer awareness of the issue, with a new line on individual income-tax forms that asks taxpayers to report their obligations on untaxed Internet and other transactions.
Since 1955, Arizona taxpayers have been obligated to report and pay "use" taxes on certain items on which sales taxes weren't collected. These include purchases made in other states or foreign countries on which sales taxes either weren't levied or were collected below Arizona's 6.6 percent rate. Use taxes also have become more relevant with the growth of Internet commerce.
Republic reporters J. Craig Anderson and Betty Beard contributed to this article.
by Russ Wiles and Mary Jo Pitzl - Feb. 2, 2012 06:45 PM The Republic | azcentral.com
Arizona bills Amazon $53 million for uncollected sales taxes