The draft ruling would affect Internet and mail order vendors located outside of Arizona. It would require many remote vendors to collect Arizona’s transaction privilege tax instead of the state’s use tax, resulting in a higher tax rate.
An out-of-state vendor’s sales into Arizona would be subject to transaction privilege tax if:
Currently, the above activities subject a remote vendor to use tax nexus in Arizona. Under the new ruling, they would be subject to transaction privilege tax nexus. For remote sellers, the distinction matters because Arizona counties do not impose use tax. They do impose transaction privilege tax. A seller who collects state use tax does not collect any county tax, but a seller who collects state transaction privilege tax must also collect the county-level tax.
The draft ruling was sparked by recent case law which determined that the state’s transaction privilege tax does not require a higher level of nexus than does the state use tax.
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