Arizona Cities Reveal Plan for Massive Tax Increase on Internet Services

If you enjoy using the internet, prepare to hide your wallet. A coalition of cities throughout Arizona have announced their intention to impose massive new tax increases on a wide array of currently untaxed digital products, targeting popular streaming services and applications such as Apple iCloud, LegalZoom and Pandora.

This outrageous plan to tax everything on the internet manifested itself from good faith legislation introduced at the Capitol earlier this year to clarify what digital products should (and should not) be taxed. Arizona law has been silent on the issue, and the Department of Revenue has struggled to develop rules to differentiate digital goods from digital services, which is an important distinction since Arizona has historically not taxed services.

HB 2479 and SB 1392 were introduced after lengthy bipartisan discussions that included input from the private sector and taxing entities, including the cities. The conclusion from those meetings was that taxing online digital services was a terrible idea that was contrary to legal precedent and would put Arizona at a competitive disadvantage, since most other states do not tax similar internet products.

Yet the allure of new revenue from internet taxation has led the League of Cities and Towns to oppose both bills. They have made it clear that no restrictions should be placed on their internet taxing powers, a radical position that could lead to digital goods and services becoming one of the MOST taxed items in Arizona. Even more stunning is that their plan is likely illegal and would violate federal law.

This is not an issue that lawmakers can remain on the sidelines. If local governments get their way, internet users will be hammered with a slew of new taxes, while digital startups and capital investment will be driven to other states much friendlier to the tech industry.

Action must be taken soon to protect taxpayers and slam the door shut on the digital internet tax. We urge everyone to contact your lawmakers to vote YES on HB 2479 and SB 1392.