Arizona Advances Legislation Requesting Federal Intervention for Sales Tax Simplification

There have been two interesting developments in Arizona as a result of Wayfair. First, the Arizona House of Representatives pushed forward a resolution, H.C.M. 2006, last week to formally ask Congress to enact uniform national legislation to simplify sales tax or similar tax collection by all states and to reduce the burden of tax compliance on remote sellers. In addition, the Arizona Senate pushed forward S.C.M. 1003, requesting Congress to do the same, on February 13. Each bill needs to be sent to the other chamber for final passage. If either bill is passed, the measure would be transmitted to the federal government. Arizona would be the first state requesting federal intervention to ensure sales tax compliance simplicity in all states by passing state legislation.

Based on the prior sales tax registration work our team was engaged, it is apparent that remote sellers, and especially foreign remote sellers, have struggled to comply with states’ sales tax registration requirements. Simplifying sales and use tax registration and collection requirements will go a long way in helping remote sellers, including foreign remote sellers, to comply with increasingly complex state sales tax requirements that have proliferated in the aftermath of Wayfair. Remote sellers face rigid penalties if they fail to register with the states and yet are prohibited from doing so because of the states’ legacy systems that prevent registration by foreign entities. Arizona’s measure, if passed, will help improve tax compliance around the United States, and hopefully businesses will incur fewer penalties and face fewer administrative hurdles as a result. Accordingly, requesting sales tax compliance simplification is long overdue and Arizona appears to be taking a step in the right direction.

Second, Arizona has also advanced a bill that would create a separate office, the Arizona E-Commerce Compliance Office (AECO), for the sole purpose of monitoring the Arizona Department of Revenue and ensuring that the Department complies with the U.S. Constitution’s Commerce Clause limitations on taxing interstate activity. While a separate office to monitor the Department’s regulations and tax practices would be a step in the right direction, it remains to be seen whether the proposed legislation gets any traction.

Pillsbury SALT is closely monitoring these developments and will report back with further updates.