- Associated Press - Sunday, February 9, 2014

PHOENIX (AP) - Arizona Republicans have come up with a new plan to cut income taxes.

After supporting an overhaul last year that allows the state to collect sales taxes on Internet purchases, GOP leaders are now backing a plan that would cut income taxes by a corresponding amount.

The restructuring aimed to simplify the tax code for businesses, but it also aligned the state with a federal proposal called the Marketplace Fairness Act, which would require online sellers to collect sales taxes for states.

That revenue could be a big windfall. Estimates vary from a low of $100 million to more than $700 million in additional state and local sales tax dollars annually.

Republicans consider the potential new collections as a tax increase and are pushing for an identical cut in income taxes to kick in at the same time.

Democrats say that the change only closes a loophole, rather than increasing taxes. They say GOP lawmakers are pushing for income tax cuts that benefit richer Arizonans at the expense of lower-income residents.

House Bill 2465 by Rep. J.D. Mesnard, R-Chandler, passed the House Ways and Means Committee on a 5-3 party-line vote last week. It would require state tax authorities to determine how much in new sales taxes were collected in internet sales in the first year and reduce the next year’s income tax rate by the same amount.

Mesnard is backed by the author of last year’s tax overhaul bill, Rep. Debbie Lesko, R-Peoria.

“The vast majority of the people who live in Arizona, they would perceive that Marketplace Fairness Act to be a new tax, and I don’t want people to believe that we would be increasing the tax on them,” Lesko said Friday.

Democratic Rep. Ruben Gallego of Phoenix called Mesnard’s proposal ridiculous and said the newly collected money should be used to backfill cuts in local road construction, K-12 schools and the state’s universities.

“That’s like saying, people that cheat the government, when we make them pay, we’re making them have a tax increase,” Gallego said. “That’s just a bogus argument.”

Democratic Sen. Steve Farley of Tucson agreed and said the income tax cut proposal was designed to benefit wealthier Arizonans.

“Our income tax is one of the few progressive sources of income we have in the state, in which case people who can afford more pay more, and that’s the way it ought to be,” Farley said.

The proposed federal law allowing states to collect the taxes from retailers passed the U.S. Senate last year and awaits action in the House of Representatives. It is backed by many state governments and business groups that argue Internet retailers who don’t have to charge the tax have an unfair advantage over traditional brick-and-mortar stores that support local communities.

Mesnard’s bill now goes to a full House after a review in the Rules Committee.

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