Bill Would Likely Trigger Higher Prices For Service Contracts, Warranties, And Retail Sale Of Stocks

February 8, 2021

At a time when more Arizonans are trading stocks online and are choosing to protect big-ticket purchases with service contracts and extended warranties, several Democrats want to amend the state law that keeps those sales from being calculated into a retailer’s gross income tax basis.

Rep. Pamela Powers Hannley (D-LD9) and five co-sponsors have introduced HB2245 which deals with Arizona Revised Statute 42-5061A, the classifications of retail sales of tangible personal property. The tax base for such classifications is the gross proceeds of sales or gross income, but state law currently includes 57 exempted retail categories.

One of those exemptions is the retail sale of warranty and service contracts. Another is the retail sale of stocks and bonds.

There is no requirement for retailers to pass along their higher costs if the bill passes, but the current economic reality is that the majority of businesses will not be able to absorb the increased tax base. The result, economists say, will be higher costs to customers.

HB2245’s likely higher costs for online retail traders in Arizona comes as companies like Charles Schwab and E*Trade experienced record-high retail business in 2020. The average daily volume of the largest e-brokers in December 2020 was 6.6 million shares and jumped to 8.1 million shares in January, CNBC reported.

“This influx has been driven by millions of Americans with more time on their hands, and in some cases out of work, due to the impact of the coronavirus pandemic,” according to a 2020 report by Jeremy Moses, Lead Industry Research Analyst for ISISWorld.

Moses noted that the pandemic accelerated “the rise of individual day traders participating in the market” in part driven by the popularity of app-based brokerages, particularly those offering commission-free trades.

The co-sponsors of the legislation are Reps. Richard Andrade, Charlene Fernandez, Stephanie Stahl Hamilton, Athena Salman, Raquel Teran. HB2245 has been assigned by House Speaker to the Committee on Ways & Means, but the committee has not yet taken up the legislation.

The other 55 exemption categories to the retail classification tax base will remain unaffected by HB2245. Some of those categories include livestock and poultry for ranching, lottery tickets, prescriptions, natural gas used to propel a motor vehicle, food service items sold to a commercial airline, and sales of fine art shipped by a gallery to an out of state buyer.

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