NAVAJO & APACHE COUNTIES — A change in the way the state treats online sales could offer a life-jacket for hard-pressed towns and counties.
Or maybe not.
That’s the take on a new state law from Arizona County Supervisors Association, which lobbies for counties statewide.
The lobbying group has worked for several years to find a way to keep the huge shift of sales from stores to online outlets from crashing county budgets.
Counties count on the sales tax for key services, including most of its roadbuilding and maintenance.
However, people don’t pay sales tax when they buy online from businesses based outside the state. By contrast, they pay nearly 10 percent when they buy from brick-and-mortar stores.
The sales tax accounts for nearly half of town revenues, but a much smaller share of county revenues.
The US Supreme Court in 2018 in South Dakota v. Wayfair ruled that the state can collect sales tax from out-of-state business selling their goods online.
The legislature this year took the first step toward taxing online sales, but with enough conditions and exemptions that experts aren’t sure what impact the change will have.
“Over the last 20 years, the financial condition of the counties has degraded as more and more commerce has moved to the internet. That has impacted main street businesses, as well as the county bottom line,” said County Supervisors Association Executive Director Craig Sullivan.
That’s because customers find themselves paying an extra 10 percent just to cover the sales tax when they go into a local retail store, which not only provides jobs for locals but supports police, fire and other services for everyone.
“That has put increased pressure on the property tax as the sales tax has eroded,” observed Sullivan at a recent Apache County Supervisors meeting.
Sullivan said the change could also help local retailers compete. “We have advocated for fairness and equity for Main Street – but it also shores up the financial system for counties and towns.”
Online sales have risen from about 5 percent of total sales to 12 percent of total sales in the past 20 years. In February, online retail sales edged out brick-and-mortar retail sales for the first time in history. Online sales amounted to $60 billion in February.
Auto and auto parts account for 20 percent of all sales. Restaurants, food and beverage and bars accounts for another 12 percent – about the same as online and local retail.
The county lobbying group pushed hard to collect online sales tax, despite the legislature’s reluctance to support any kind of tax increase.
The new system takes effect on Oct. 1 and will require all out-of-state online retailers to file and pay transaction privilege tax (sales taxes) to the state.
However, the retailer must sell more than $200,000 to Arizona residents in 2019, or $150,000 in 2020 or $100,000 going forward from there.
That law also covers “marketplace facilitators” that operate the platforms people use to buy from other businesses – which presumably means the big dogs like Amazon. The platforms would have to collect the tax and send it along to the state for sellers who meet the financial thresholds.
But no one’s sure how this complicated bit of business will work out – or how the state can effectively enforce the new rules over distant businesses with which it has little leverage or communications. The bill doesn’t specify how the money will get divided once the state collects it.
“We really don’t know what it will mean. I’m reluctant to say ‘X’ dollars will be available” to counties or towns. “but it does shore up the leakage – so that was a good result.”
Peter Aleshire covers county government and other topics for the Independent. He is the former editor of the Payson Roundup. Reach him at email@example.com