Experts discuss what online purchases should be exempt from sales tax

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A bill is currently trying to be passed that will make it clear for both the consumer and business what software, goods and services online will be charged with a sales tax.

“It’s crazy that we are just now figuring out what should be taxed on the internet,” Senior Research Analyst for the Arizona Tax Research Association Sean McCarthy says. “Arizona is well behind. We don’t have one statutory law in the books as it relates to taxing software, digital goods and services.”

Others will argue that there is already clear terms in the books that groups what is and isn’t exempt from sales tax. One of those in opposition of the bill is Kent Strobeck, executive director of the League of Arizona Cities and Towns. He says the framework for purchasing software products on a tangible basis is also being applied to purchases made through the internet. Whether or not that’s true, McCarthy says it isn’t clear enough for businesses and consumers when they’re making a transaction.

“I represent hundreds of businesses in Arizona and they say there is no telling when they owe it and how they owe it…,” McCarthy says. “Some were bullied into paying by the department based on no statutory framework and others have said no that’s not taxable we’re not paying.”

The policy that has been in place for over two decades does have clarity, argues Strobeck. He explains that types of purchases aren’t itemized in the tax code, but rather they’re grouped under umbrellas.

“You see in the statute a category of the things that we tax, tangible goods,” Strobeck says. “What’s in statute is what’s exempted. If you’re looking for digital goods in the statute, you’re not going to find it, but you’ll find it under the umbrella of tangible goods.”

The businesses aren’t reassured by the umbrella concept, McCarthy says. Once there’s not a lack of compliance by the Department of Revenue, he says, they’ll be able to work together to get a clear law set in motion like other states already have.

Sean McCarthy: Sr. Research Analyst, Arizona Tax Research Association
Kent Strobeck: Executive Director, League of Arizona Cities and Towns

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