CONSUMERS

Do your online purchases seem more expensive? It's not imagination -- Arizona now requires sales tax

Andrew Howard
The Republic | azcentral.com
Consumers in Arizona may notice the cost of their online purchases going up this month, as the state is now enforcing a sales tax for out-of-state and online companies.

Consumers in Arizona may notice the cost of their online purchases going up this month, as the state is now enforcing a sales tax for out-of-state and online companies.

The changes were implemented Oct. 1, according to Ed Greenberg, communications director for the Arizona Department of Revenue. He said about 800 out-of-state sellers are licensed under the program, with more on the way.

How much it will cost Arizona buyers is based on a state and county combined rate, as well as the rate in the jurisdiction where the purchase is shipped to, Greenberg said.

For example, on a $100 purchase made in Phoenix, where the combined state, county and city rate is 8.6%, a consumer would pay $8.60 more on the purchase. 

The tax, technically the "transaction privilege tax," is expected to bring in millions for Arizona. 

The Joint Legislative Budget Committee estimates that the changes will generate $57 million for the state's general fund in 2020 and $85 million in 2021, according to a committee report based on two studies.

But, the committee wrote that “this estimate is uncertain, however, and should, therefore, be interpreted with caution.”

The change could help local businesses, Greenberg said.

“Transaction privilege tax or TPT has been in place in Arizona for decades and has evolved over the years,” he said. “The decision by state policymakers essentially levels the playing field for other businesses already paying TPT.

"This establishes consistency in the tax treatment of transactions by businesses based in Arizona or from out of state.”

Garrick Taylor, senior vice president of communications and government relations for the Arizona Chamber of Commerce, said the chamber supported the adoption of the new rule. 

"We had heard concerns over the years about an uneven regulatory playing field for brick and mortar retailers," Taylor said, adding that it was important to seek a tax reform that allowed online retailers to thrive without putting others at a disadvantage. 

Taylor said the chamber will continue to track the change and is open to possible reform in the coming years if the new rule doesn't work as planned. 

Looking at the big picture, Taylor said online businesses can still be successful, "but not at the expense of brick and mortar."

Sellers that make over $200,000 in gross annual sales are required to pay the new sales tax this year, and that number will change to $150,000 in 2020. The final gross sales threshold will be set in 2021 when out-of-state sellers that gross $100,000 will be required to pay the tax.

Supreme Court decision prompted tax 

Gov. Doug Ducey signed the law to broaden the tax on May 31.

The law was made possible by the Supreme Court’s 2018 decision in South Dakota v. Wayfair, which “allows states to require out-of-state businesses without a physical presence to collect and remit tax on sales from transactions in their state,” according to ADOR.

Greenberg said Arizona’s sales tax, in general, is different from those in other states because it makes the seller responsible for the tax. He said companies will choose whether to pass it on to the customer.

ADOR is working to help both in-state and out-of-state sellers with the change. The department has established a new section on its website, as well as the E-Commerce Compliance and Outreach team, which can help Arizona retailers who have to navigate similar laws in other states, Greenberg said.