PHOENIX -- One of the nation's largest online retailers beat back a bid by state lawmakers Thursday to make it start collecting and paying taxes on its sales to Arizona residents.
On a 20-8 vote, the Senate killed legislation by Sen. Al Melvin, R-Tucson, which would have redefined who has to collect state sales taxes. The target, he acknowledged, was Amazon.com.
Several senators said they understand how Internet sales can undermine Arizona-based retailers who are required to levy the state's 6.6 percent sales tax. That puts those retailers at a competitive disadvantage.
Melvin argued his measure would help "save the brick-and-mortar store jobs."
But Sen. Jerry Lewis, R-Mesa, said SB 1338 is flawed.
"It's going against one single company," he said. "And that is against our Constitution."
But Melvin said while it would be nice to force all Internet companies to collect Arizona taxes, he is pretty much legally limited to going after Amazon and whatever other companies operate the way it does.
Federal courts have said a state can force a retailer to collect its sales tax only if it has a physical presence in the state.
That, however, is not limited to the "bricks and mortar" retailers that Melvin said he is trying to help. It also means Target.com has to collect the state sales tax on items shipped to Arizona because it also has stores here.
Amazon.com has argued the law does not apply to the Seattle-based retailer because it has no stores here.
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Melvin's legislation would have redefined what constitutes a "physical presence" in the state to also include warehouses and distribution centers. Amazon has several of what it calls "fulfillment centers" in the state.
No other firms have been mentioned as falling under the expanded definition.
Lewis said what Melvin wants to do is not fair -- and not only because other Internet sellers without warehouses here would remain unaffected.
He said Amazon.com built those warehouses in Arizona based on what was its understanding of the law at that time: No retail outlets meant no mandate to collect taxes.
"For us to now change the rule makes it a little difficult for me to go back to people that are wanting to locate their business in Arizona and say, 'Please come to Arizona where we may change the rules on you at a later date,' " Lewis said. "And I would like to encourage more businesses to come to this great state and plant their roots deep and know that we're not going to change the rules on them."
Lewis said there is a solution to do what Melvin wants but make it fair: Have Congress change the law to require all online retailers to collect the sales taxes for the states where their items are being shipped. While such legislation has been considered for years, there has yet to be consensus on a plan.
Even if Melvin is unable to resurrect the legislation, that does not mean Amazon.com is off the financial hook.
Last month the company disclosed that the Arizona Department of Revenue has issued a $53 million assessment for unpaid taxes from March 1, 2006, through the end of 2010.
In a filing with the Securities and Exchange Commission, the company said the assessment "is without merit" and the company intends to defend itself vigorously.