An appeals court says we must pay more in state sales taxes than we earned in 20 years selling auto parts to Arizonans, even without a local store.

I am president of RockAuto, a Wisconsin-based online auto parts store that my family and I started in 1999. 

We ship parts to DIY and professional mechanics worldwide.

Since 2019, when a new law taxing out-of-state businesses took effect, RockAuto has paid Arizona sales taxes, even though we have never had an Arizona store. 

Unsatisfied, the Arizona Department of Revenue recently convinced an appeals court that we were physically present in Arizona before 2019 without knowing it and owed millions of dollars in taxes under the old law. 

Arizona wants more money than we earned

Somehow, according to the ruling, every Arizona factory and wholesaler selling parts to us became our branch office when we asked them to ship directly to our customers. 

Address labels became stores, refrigerator magnets became salespeople and, magically, RockAuto was in Arizona.

No previous court case has found a retailer “physically present” without employees or assets or someone making in-state contact with customers. 

The revenue department’s own publications even say that “drop-shipping” from Arizona suppliers — asking manufacturers or wholesalers to ship their products directly to a retailer’s customers instead of to the retailer’s store — does not create tax liability. 

Still, the department persists in demanding six years of taxes (which we didn’t collect from customers) plus interest and penalties — far more money than we earned in 20 years selling auto parts to Arizonans.

We’ve petitioned the Arizona Supreme Court to review the case. The Arizona Tech Council and state Rep. Michael Carbone have written letters pointing out that tax laws come from the Legislature, not the revenue department’s imagination. 

RockAuto may have to stop selling in Arizona

Because Gov. Katie Hobbs did not create this situation (it began before she took office), thousands of our Arizona customers have appealed to her to restrain the department.

Empowered by the appeals court, however, the revenue department has not responded.

To protect the livelihoods of our families from future attack, we’ve stopped buying from Arizona suppliers. We may be forced to stop selling to customers in Arizona. 

Dismantling relationships that took decades to build is heartrending. But we can’t work for free or live in fear of the next random, retroactive ruling. 

Other online retailers that bought from Arizona suppliers in past decades or today could be next on the department’s hit list. 

Do you or your business depend on any of them?

Jim Taylor is president of RockAuto, an online parts store based in Madison, Wisc. Reach him at service@rockauto.com.