Wednesday, 19 January 2000
By Howard Fischer
Capitol Media Services
PHOENIX - State lawmakers are moving to block cities and their
own Department of Revenue from taxing Internet sales.
Legislation approved yesterday by the House Ways and Means Committee
specifies that Internet transactions are not subject to taxes
unless there is a ``nexus'' to the state. That generally means
the buyer is located here.
The measure also specifies there can be no taxes on Internet access
and services.
Lawmakers are going to consider a more far-reaching proposal this
morning for a moratorium on taxes on all Internet sales - no matter
where the buyer or seller is located.
Rep. Barry Wong, R-Phoenix, said his five-year freeze will give
Internet-based businesses a chance to get established in Arizona.
In the interim, the state - and Congress - can figure out whether
Internet sales should be taxed and how to accomplish that, he
said.
The action comes as the issue of Internet sales heats up in the
presidential race.
Sen. John McCain signed a formal pledge yesterday never to tax
Internet sales. He wants the temporary ban approved by Congress
to be made permanent. But Texas Gov. George W. Bush, the Republican
front-runner, said he supports only continuing the moratorium
to see ``what the world looks like'' after three to five years.
The city of Tucson is exploring whether to impose its own Internet
tax. Tucson officials estimate the city could lose more than $30
million in sales taxes by the 2004 fiscal year.
Vince Perez, lobbyist for the Arizona Department of Revenue, said
the measure approved yesterday conforms with the way his agency
imposes taxes on telephone and catalog sales. He said a sale is
taxable if it is made by an Arizona company to an Arizona resident.
That means someone who orders a computer from Insight.com, a Tempe-based
firm, is charged the state and city taxes. A similar sale made
by a Texas retailer, however, would not be subject to the sales
tax.
Technically, an Arizonan who buys an item from a retailer in another
state is supposed to pay a ``use'' tax equal to the Arizona sales
tax. Perez conceded, though, enforcing that is difficult, especially
in sales to individuals.
By contrast, Wong's bill, to be considered today by the House
Committee on International Trade, Technology and Tourism, specifies
there can be no sales tax at all on an Internet-based sale, no
matter who makes it. That gets around the problem of giving an
out-of-state retailer a financial advantage over one located here.
Wong acknowledged that his bill technically would give a break
to Internet sales - a break not enjoyed by companies that market
by catalog and telephone. But he said there is nothing to keep
those retailers from setting up their own Web sites to take orders.
Wong also said the tax exemption would not hurt traditional ``bricks
and mortar'' retailers that have shops in the state. ``People
still want to go into stores.''
The bill approved yesterday has one provision not in Wong's measure:
It blocks taxes on Internet services.
Ann Dumenil, lobbyist for Evergreen Internet, said the city of
Chandler is imposing its sales tax on the services provided. She
said this applies when Evergreen designs and hosts a Web site
for a company.
Dumenil said that if the Legislature does not step in, other Internet
providers will be discouraged from locating in Arizona.
The Associated Press contributed to this story.
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