CC - Agendas - City Council - REGULAR - 8/14/2018

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9.E.a BFED #2 League of Arizona Cities & Towns Resolution Seek legislation that adds an economic presence nexus standard based on reasonable thresholds for sales in dollars and number of transactions to address transaction privilege tax collection on remote sellers for all taxing jurisdictions. A. Purpose and Effect of Resolution The recent U.S. Supreme Court Decision in South Dakota v. Wayfair, Inc. overturned the outdated physical presence standard. This decision clears the way for the state and local governments to enforce existing transaction privilege tax imposition on remote sales. Recognizing the financial drain of a physical presence standard as retail activity shifted from brick -and -mortar stores to the Internet, South Dakota began requiring collection of sales tax by sellers with no physical presence in the state provided they met certain economic criteria. The law established statewide nexus for imposing tax based on "economic presence" if a seller made more than $100,000 in sales or 200 separate transactions in the state in a calendar year, The State of Arizona should enact a similar piece of legislation as soon as possible. To avoid litigation such legislation should mimic the South Dakota model, including reasonable thresholds for the minimum in sales dollars and transactions in a year before triggering tax liability; applying the new standard prospectively only with a reasonable delay prior to implementation; and a requirement that the State and local tax codes for the Retail classification must remain uniform for any transaction that can be conducted by a remote seller. B. Relevance to Municipal Policy TPT is the largest single component of local revenues. This revenue stream must be protected against continued erosion as retail sales shift to out-of-state sellers maintaining a market in Arizona with a built-in price advantage over local retailers because they don't collect the tax. It is also imperative that any legislation must protect the Model City Tax Code from misguided efforts to use the Wayfair decision to justify its wholesale elimination. C. Fiscal Impact to Cities and Towns Adopting an economic presence nexus standard will undoubtedly increase revenues for cities and towns through local TPT collections and increased shared revenues from State TPT collections. Any estimate of this increase should be conservatively calculated. Most of the largest online retailers are already paying the tax because they also have a physical presence. This will capture the few holdouts and mid -sized sellers, while providing relief allowing small sellers to grow. D. Fiscal Impact to the State Adopting an economic presence nexus standard will undoubtedly increase revenues for the State, however the same caution regarding how much of an increase to expect applies here as well. Attachment: 2018 League Conference Resolutions Packet (2125 : League Resolutions Voting) 12 Packet Pg. 148