First They Came for the Auto Parts: A Warning Sign for Local Businesses

RockAuto, an online auto parts retailer based in Wisconsin, is facing a significant tax dispute with the Arizona Department of Revenue (ADoR). Founded in 1999, the company has been a key player for both casual DIY car enthusiasts and professional mechanics globally. Since 2019, RockAuto has complied with a new Arizona law requiring sales tax from out-of-state businesses, even without a physical store in Arizona.

Recently, the Arizona Court of Appeals sided with ADoR, determining that RockAuto was “physically present” in the state prior to 2019. This conclusion was reached despite the company not having employees or physical assets in Arizona. ADoR argued that all Arizona factories and wholesalers supplying parts to RockAuto functioned as branch offices the moment they shipped directly to customers. The implications of this ruling pose a significant threat, as RockAuto now faces demands for six years’ worth of taxes, alongside interest and penalties, which far exceed the company’s total earnings from sales to Arizona residents over two decades.

In light of these developments, RockAuto has petitioned the Arizona Supreme Court for a review. Support is growing, as organizations like the Arizona Tech Council and State Representative Michael Carbone have publicly contested ADoR’s interpretation of tax obligations, emphasizing that the legislature, not the ADoR, should determine such laws. Governor Hobbs finds herself in a complex situation, as this tax dispute began before her tenure, yet many residents have called on her to advocate for a fairer resolution.

Customer feedback has highlighted the importance of RockAuto’s services. One resident noted that in rural areas, RockAuto often represents the only timely source for automotive parts. An accountant criticized ADoR’s stance as fundamentally flawed, while another resident expressed concerns over the potential loss of competition affecting pricing for essential car components.

Under the current circumstances, RockAuto has ceased purchases from Arizona suppliers to safeguard its operations. The risk of losing a long-established customer base, along with concerns for future rulings from ADoR, has left the company in a precarious position. This decision not only threatens RockAuto’s ability to serve Arizona consumers but also raises alarms for other e-commerce businesses that have utilized Arizona suppliers.

The repercussions of this legal decision could set a troubling precedent, leading to further scrutiny of online retailers, regardless of their nexus status. The resolution of this case may forever alter the landscape for e-commerce businesses operating in or reliant on Arizona’s supply chain.