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AZ Senate Votes Against Sales Tax on Amazon

One of the nation's largest online retailers beat back a legislative effort Thursday to force it to start collecting taxes on its sales to state residents. 

Federal courts have said states can force a merchant to collect sales tax only if the company has a physical presence there. That includes not only traditional retailers but even online purchases from places like because it also has stores in Arizona. This proposal would have expanded the definition of physical presence to include any retailer with even a warehouse in Arizona -- a proposal clearly aimed at But opponents said it was unfair for Arizona to single out one online company because it could and leave sales from others untaxed. Senator Jerry Lewis said there's another fairness issue at work. He said Amazon built warehouses in Arizona based on the law at that time: No retail outlets meant no mandate to collect taxes.

"For us to now change the rule," said Lewis, "makes it a little difficult for me to go back to people that are wanting to locate their business in Arizona and say, 'Please come to Arizona where we may change the rules on you at a later date.'"

The defeat of the bill does not mean Amazon is off the financial hook. The state Department of Revenue has issued a $53 million assessment for unpaid sales taxes from March 2006 through the end of 2010. But company officials said in a formal statement they are fighting it, calling the assessment -- quote -- without merit.