PHOENIX - Amazon.com will not be required to start collecting sales tax on purchases made by Arizona residents after the state Senate on Thursday soundly rejected a proposal that supporters argued was essential to protect local employers.
"It's really a jobs bill," said Sen. Al Melvin, a Tucson Republican who sponsored it.
The bill didn't identify Amazon by name, but the legislation was widely viewed as targeted toward the Seattle-based company. The failed plan would have classified Amazon as an in-state retailer for tax purposes because a subsidiary has distribution centers in Arizona.
Amazon contends it doesn't have to collect sales tax on sales to Arizonans because the parent company doesn't have a physical presence in the state. And a lobbyist for the online retailer testified during a committee hearing that the bill would violate the Arizona Constitution's prohibition on bills targeting specific individuals or companies.
Several senators echoed that argument during Thursday's vote, and one said the bill could make it difficult to recruit businesses to Arizona if they perceive that they'll be hurt by future changes in the state's tax policy.
Amazon "has created many jobs, high paying jobs," said Sen. Jerry Lewis, a Mesa Republican who added that he thought the sales tax issue should be decided nationally.
Sen. David Schapira, D-Tempe, supported the bill, saying he loves Amazon as a customer but not as a business operator who had a competing company.
"The problem is not everyone is going and paying the tax on the tax return," Schapira said, referring to the rarely-observed requirement that Arizonans report and pay sales tax on online purchases. "It's unfair that I had to collect and do that as an Arizona business and Amazon doesn't have to do that."
The bill was defeated on a 20-8 vote despite arguments by retailers and legislative supporters of the bill that thousands of jobs at brick-and-mortar businesses are at stake.
Earlier Thursday, a Senate committee endorsed a related tax bill despite being told it could unexpectedly cut state revenue by at least $20 million to $30 million.
Arizona last year approved legislation requiring residents to report and pay a form of sales tax on purchases made out of state -- including those made online. That tax has been owed but generally not paid.
Rep. Debbie Lesko's bill would eliminate the reporting requirement that is taking effect with income tax returns now being filed for 2011. It also would exempt Arizona residents from paying the so-called "use tax" on purchases from out-of-state sellers unless the item purchased was a motor vehicle, a boat or property used for business.
A revenue department official said the exemptions would likely result in lost revenue because some out-of-state retailers would stop voluntarily collecting use tax on sales to Arizona customers.
Lesko said she didn't know if her bill could be changed to prevent that.