Arizona finds a way to counter Marketplace Fairness Act taxes

Since we haven’t revisited this subject in a while, it’s time to see what the folks on the Marketplace Fairness Act front have been up to. This is a proposal which may or may not make it to a vote at this point, but if it does, Arizona is one of several states which are putting measures in place to alleviate the concerns of tax hawks. With a new bill which has gotten an initial thumbs up in the House, the government will be required to make sure that any new revenue flowing in to the state as a result of the MFA is given back to the taxpayers in the form of lower income taxes.

State lawmakers voted Thursday to give up potentially hundreds of millions of dollars of sales taxes Arizona is owed, taxes the federal government may finally help them collect.

HB 2061, given preliminary House approval, spells out that if and when Internet companies are forced to collect taxes on sales to Arizona residents, the Department of Revenue will figure out how much new money is flowing into state coffers. More to the point, it requires the state agency to reduce income tax rates by an amount equal to those extra dollars.

Rep. J.D. Mesnard, R-Chandler, acknowledged that these taxes already are owed to the state. Arizona law requires those who purchase items online to pay the equivalent tax to the state if it is not collected by the seller.

It’s hard to say whether this is actually a policy change or mostly just some sleight of hand to keep the books balanced. Essentially, the legislators are admitting that under current state law the sales taxes on internet purchases are due to Arizona, but the vast majority of people ignore that law and don’t pay. If the MFA suddenly delivers all of those tax dollars, they don’t want it to be a net negative for the state’s residents, so tax cuts will be used to keep the net state revenue even. As compromises go, you could do worse.

But apparently Arizona isn’t the only state with an eye to an MFA future. Texas has gotten the ball rolling on a measure to cut the Texas Franchise Tax on small businesses if the internet sales tax loophole is closed. Of course, that one doesn’t sound like it’s geared to help the consumer, but it’s better than nothing.

In Tennessee, the Governor and leaders in the legislature have been developing a plan similar to that in Texas, where residents would see a tax cut designed to balance new state revenue from the MFA. (It’s worth noting that this one is still just in the “discussion” stages, though, and they would have to actually carry through on passing it.) Ohio has already passed a law mandating such a tax cut, and Wisconsin Governor Scott Walker has promised similar legislation.

Of course, none of this will matter if the MFA doesn’t pass. But if it does, you can at least take some comfort in knowing that there are plans in place to balance the revenues… depending where you live.