2019: Digital-goods taxation data unreliable, leaves fate of bill uncertain

Arizona Capitol Times
Wednesday, March 20, 2019
Ben Giles

A lack of reliable data on the impact of a bill to forgo sales taxes on certain digital goods has again stymied legislators trying to settle the issue in state law.

A similar bill was stopped in its tracks a year ago, when the League of Arizona Cities and Towns estimated more than $100 million in revenue would be lost by an effort to exempt digital items like videos, cloud-based software and other streaming and hosting services from state and local sales taxes.

Now some lawmakers feel SB1460, which awaits a vote on the Senate floor, is bogged down by the same uncertainty.

League officials have again predicted dire consequences if the bill is approved. They estimate the state would lose more than $65 million in revenue, while cities stand to lose nearly $27 million, though they admit their analysis is imperfect – it’s an aggregate figure based on data from companies that self-report taxes.

Last year, League estimates dominated the debate over taxing digital goods by default. State budget analysts were unable to crunch the numbers and come up with their own fiscal impact because the Department of Revenue failed to provide meaningful data.

DOR finally delivered last week with an analysis that predicts $33.1 million in lost revenues to the state, roughly half of what the League estimated.