Shoeleather Journalism in the Digital Age

Shoeleather Journalism
in the Digital Age

RockAuto seeks solution at Arizona Legislature stemming from ‘economic nexus’ online sales tax rules

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A view of the Arizona Legislature. (File Photos/DigitalFreePress)
Staff Reports | Community Updates

Whether you buy products online or own a company that does business with online retailers, the Arizona Supreme Court’s recent decision to decline hearing a critical case could create significant problems for businesses and consumers.

As a result, an online retailer is hoping the Arizona Legislature can solve the issue. RockAuto.com is an online retailer in Madison, Wisconsin.

Since 2019, when a new law taxing out-of-state businesses based on ‘economic nexus’ took effect, RockAuto has paid Arizona sales taxes even though they never have had a store or employees in Arizona.

However, the Arizona Department of Revenue claims RockAuto was physically present in Arizona before 2019 without knowing it because RockAuto purchased auto parts from Arizona manufacturers and wholesalers. ADOR sent a bill for millions of dollars in sales taxes RockAuto never collected from customers — more money than RockAuto earned in 20 years selling parts to Arizonans.

The Arizona Tax Court agreed with RockAuto — and ADOR’s own published guidance — that ‘drop shipping’ did not create tax liability. The Arizona Technology Council and Rep. Michael Carbone wrote letters pointing out that tax laws come from the Arizona Legislature, not ADOR’s imagination.

Thousands of RockAuto’s Arizona customers emailed Governor Hobbs asking her to restrain the ADOR. But the Department of Revenue convinced the Arizona Court of Appeals that refrigerator magnets were like salespeople, address labels were like stores, independent suppliers were “distributors” and RockAuto owed tax retroactively to 2013.
RockAuto President Jim Taylor said.

“To protect the livelihoods of our families from future attack, we’ve stopped buying from Arizona suppliers,” RockAuto President Jim Taylor said in a prepared statement. “We may be forced to stop selling to customers in Arizona. Dismantling relationships which took decades to build is heartrending. But we can’t work for free or live in fear of the next random ruling.”

While the Arizona Supreme Court has declined to hear the case, RockAuto is asking the Arizona Legislature to clarify that “physical presence” means buildings, not magnets.

“I’m hopeful the legislature will clarify the law, as Arizona’s Attorney General promised in 2019, to protect all retailers from multi-year battles with ADOR,” Mr. Taylor said. “We don’t mind paying taxes when we know they exist. We just want to help people fix cars!”

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