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Fri, Feb. 28

Editorial: Online sales tax? Great Trade-off? Not so much

On the face of it, the current effort by Republicans in the state Legislature to cut income taxes by shifting the tax burden to Internet sales taxes has a whiff of the odious. Democratic representatives, falling prey perhaps to the accustomed knee-jerk reaction to any Republican proposal, call the proposal regressive.

"Our income tax is one of the few progressive sources of income we have in the state, in which case people who can afford more pay more, and that's the way it ought to be," Sen. Steve Farley of Tucson said.

But, according to an Associated Press story, Republicans are worried that mandatory collection of online sales tax, an idea that is dependent on Congress completing passage of the Marketplace Fairness Act, will be looked upon by their constituents as an additional tax, a concept repugnant to GOP stalwarts.

Thus, the Arizona bill in question, HB 2465, would require a state agency, likely the Arizona Department of Revenue, to ascertain how much additional revenue the state collects in online tax and then reduce the income tax rate by the same amount. If this proposal truly turns out to be revenue-neutral, the difference in what the state collects would be spread evenly between everyone who spends and everyone who pays state income tax. And that is anathema to Democrats, who believe that the rule would cause less fortunate folks to pay a higher share of their incomes while decreasing the proportional tax on those who earn more.

Democrats also object to the idea of not accepting the additional money as a windfall. While Arizonans are already supposed to pay sales tax on out-of-state Internet purchases, the payment is at this point voluntary. By requiring the online business to collect, report and submit the tax revenues, an increase in collections is a certainty, even though Arizonans already pay sales tax on Internet purchases from companies that have a physical presence in the state.

So why not use the money for any of a number of deficiencies? Estimates of how much the move would raise vary from $100 million to $700 million per year. No doubt schools could use the money, though the Legislature for years has been loathe to increase that budget line.

Bottom line is, calling the proposal a means to prevent a tax increase is a bit of a play on words. After all, Arizonans who make online purchases - aside from putting local merchants at a disadvantage - should already be paying taxes on those transactions, so the amount of increase should already be there.

There seem to be too many flaws in this proposal to make it worthy of support. Taxing Internet sales would help local businesses and augment the state treasury. Giving up those gains would be the equivalent of two steps forward, followed by three steps back.

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