Buying Online to Avoid Taxes Costs Everyone in the End
While economists nationwide argue over whether we have begun to recover from the Great Recession, one financial reality is beyond dispute. Our state is facing the biggest budget challenge in decades. Even in a slowly rebounding economy, Arizona is faced with a projected mid-year budget shortfall of $2.0 billion, which means that local governments -- even if they raise school and property taxes -- are going to be cutting support for such essential services as policing, fire fighting, and schools.
The enormous irony in this troubling story is that Arizona is allowing hundreds of millions of dollars in sales tax to go uncollected by allowing remote online retailers with a significant business presence in our state to ignore their obligation to collect sales tax.
Given the sums involved, you would think there would be many in the state calling for this situation to be remedied, but unfortunately, there are not. Under current sales tax law, any out-of-state retailer is required to collect and remit sales tax for purchases made by residents in Arizona if the retailer has a physical presence in our state. Current sales tax laws dictate that an out-of-state retailer has a physical presence in a state if they have a store, warehouse, office, or sales agent in the state.
Amazon.com and other online giants have thousands of affiliates in Arizona, and they are actively promoting products sold by these out-of-state businesses. When this promotion results in a sale of said product, they earn a commission. That, by any definition, is a sales agent, and that means that these online mega-retailers have the legal presence in our state that requires them to collect sales tax.
Furthermore, there is no doubt that consumers enjoy this so-called advantage. I hear it often: They will shop at out-of-state e-tailers just to avoid paying sales tax.
We are not talking about just a few dollars here and there flowing out-of-state. The reality is that 322 million dollars will be lost in Arizona in 2010 alone, and the figure is growing. This is money that should be going to first responders, to local communities, and to lessen our tax burden. Instead, this money is flying out-of-state to remote retailers and the affiliates that pocket the cash while taxpayers subsidize their use of our in-state services, our roads, and their very business.
Taking advantage of our state's unwillingness to enforce sales tax laws during the best of times is egregious enough. However, during a recession that has hit our state so hard, it's an affront to every business and citizen in the state.
And what's worse, on an economic level, it makes no sense.
Legislators who oppose sales tax equity tout their belief in fiscal responsibility. But, in truth, how fiscally responsible is it to maintain a public policy that subsidizes out-of-state retailers while punishing in-state, tax-paying businesses and residents? Does fiscal responsibility demand that our state government burden residents and businesses with higher taxes and fewer services to placate out-of-state retailers that only take from our state and provide nothing in return?
Opponents also love to argue that folks like me are calling for a new tax. The idea that any struggling retailer in our state would demand a new tax on consumers just doesn't pass the giggle test. Many online retailers, including Wal-Mart, Barnes & Noble, and Sears, already collect and remit sales tax for online purchases. Amazon believes they are above the law and continues to avoid collecting or paying Arizona sales tax.
So please, when you go to the Internet for some tax-free shopping, I would only urge you to remember that your purchase isn't really free at all. In fact, that tax-free purchase costs all of us and our communities a lot more than you might think. As we face the crisis and begin cutting police officers and firefighters, remember the role we all played in downgrading our quality of life.
Are we ready to fight our own house fires and haul our own trash to the dump each week? How penny-smart will we feel when the libraries and parks are gone and the streetlights have gone dark?