This tax dispute could cost Arizonans their RockAuto access – Jalopnik

RockAuto isn’t the only place you can find car parts online, but it’s certainly one of the largest. But if you live in Arizona, you probably won’t be able to shop there after November, even if you really want a specific part. Why? Because the state’s Joe Arpaio recently decided that the parts site owes approximately $11 million in unpaid sales taxes, an amount that RockAuto’s president said in a recent op-ed amounts to “a lot more money than we made in 20 years selling auto parts to Arizonans.” Who cares? That doesn’t sound good.

Well, it turns out to be a bit complicated, but the bottom line is that the state decides that RockAuto has a physical presence in the state and therefore owes back taxes on its sales, plus penalties. RockAuto disagrees and has said it will simply stop doing business in Arizona next month while it tries to work with the state to find a solution. Unfortunately for most of us, understanding the details of what’s going on also means wading our way through several lawsuits. The good news is, The Autopian was recently published a deep dive into this whole situation, and while it’s long, chances are it will answer all your questions.

Until recently, states were not allowed to collect sales taxes from online retailers that did not have a physical presence in those states. However, in 2018, the Supreme Court ruled that this is in fact the case could collect taxes from companies doing business in the state, even without having a physical presence there. That of course made the states happy, because states love being able to collect more taxes. Arizona responded with the Transaction Privilege Tax, which went into effect in 2019, and RockAuto has been collecting and paying sales tax on its sales in Arizona ever since.

RockAuto and other online retailers may not have been thrilled with that ruling, but they have complied. It wasn’t until the Arizona Department of Revenue conducted an audit that things became controversial.

However, the Court asserted that RockAuto’s Arizona suppliers are not there to help RockAuto establish a market in Arizona, as ADOR maintained. Instead, the Court stated, whether or not a customer receives a part from an Arizona supplier is entirely up to him. RockAuto can be configured to deliver parts to you based on your desired cost, speed or efficiency. As a result, only 11 percent of orders placed in Arizona are fulfilled by Arizona suppliers, and Arizona suppliers ship the most packages to other states.

The Court ruled that RockAuto did not have the requisite physical presence for the state to attempt to collect taxes from RockAuto. The court then ordered ADOR to pay RockAuto $892.95 in costs and $136,875 in attorney fees.

Instead of letting it end there, ADOR appealed, and that time it won:

Ultimately, the Arizona Court of Appeals ruled that RockAuto does indeed have a presence in Arizona because it has its Arizona suppliers ship to Arizona customers, uses RockAuto’s systems, and handles RockAuto’s returns. The court supports its conclusion by pointing out that RockAuto employees also visited suppliers in Arizona and that RockAuto sends promotional materials to customers in the state. The Arizona Court of Appeals ruling also appears to imply that the Arizona Tax Court could have applied Shaft‘s nexus test in a post-Shaft world. Either way, this spells bad news for RockAuto.

Somehow, every factory and wholesaler in Arizona that sold parts to us became our affiliate when we asked them to ship directly to our customers. Address labels became stores, refrigerator magnets became salespeople and, magically, RockAuto was in Arizona.

In no previous case (including ours in Arizona Tax Court) has a retailer been found to have a “physical presence” without employees or assets or anyone interacting with customers in the state. ADoR’s own publications say “drop-shipping” from Arizona suppliers does not create a tax liability. But ADoR continues to demand six years of taxes (which we haven’t collected from customers) plus interest and penalties – much more money than we made in twenty years selling auto parts to Arizona residents!

At the time, Taylor said RockAuto may have to stop doing business in Arizona, but he did not mention a specific deadline. A TikTok (embedded above) claiming that RockAuto will no longer ship orders to Arizona recently went viral. Is that it then? Can Arizona residents no longer order from RockAuto? Not exactly, but when The Autopian asked Taylor for clarification, he explained in an email that “the current situation is not sustainable, so we plan to discontinue sales to Arizona in early November.” So if you need car parts, you better get your order in quickly.

That said, Taylor’s response was at least seven paragraphs long and contained many more details that it would be fair to include here, so why don’t you go to The Autopian to read the whole thing. And while you’re there, tell Mercedes to say hi to her old Jalop buddies.