Eliminating Taxation of Cloud Computing and Streaming Services under HB2479 and SB 1392 Not Wise

March 5, 2018

Legislation Analysis


March 5, 2018 (revised March 6, 2018)

Dave Wells, Research Director
Grand Canyon Institute

For more information, contact Dr. Wells:602-595-1025, Ext. 2, dwells@azgci.org


Eliminating Taxation of Cloud Computing and Streaming Services under HB2479 and SB1392 Not Wise


Last week the Arizona House approved HB2479 39-19 to eliminate taxing of streaming services or cloud services on companies that did not allow a download option.  A companion bill SB1392 awaits action on the Senate floor and may have a floor debate and vote this week.

These identical bills have the potential to be a significant revenue hit if not now, then in the future. The Arizona League of Cities and Towns estimates the revenue loss to state and local governments  of $180 million.  The Joint Legislative Budget Committee (JLBC) has not identified a specific amount, but has determined this legislation would be a net loss to the General Fund .  Because the state, due to lack of revenue growth, now runs a permanent austerity budget (See GCI State of the State Budget: The Revenue System is Broken), any revenue loss should be avoided when possible.

Action now is also premature as the U.S. Supreme Court will hear South Dakota v. Wayfair on April 17 with a ruling by the end of June.  That decision will determine what parameters can be used by states in determining tax liability for e-commerce transactions involving vendors without a technical physical presence in the state. 

These factors suggest the state would be advised to wait until after the U.S. Supreme Court decision before setting Transaction Privilege Tax (TPT) and use tax policy on e-commerce.  The Supreme Court  decision may allow the state to change statute to improve the nexus for collecting TPT instead of the frequently avoided use tax in e-commerce.  Likewise, it gives more time to evaluate how any deviations from existing practice would impact state revenue.