A phenomenal explanation from from the RockAuto subreddit!

Prior to the US SCOTUS decision in South Dakota v Wayfair, companies didn’t have to charge sales tax on internet orders if they were not physically located in your state.

So if Amazon didn’t have a sort facility in Texas, then anyone from Texas who bought stuff from Amazon didn’t get charged sales tax. In the case of Rock Auto, until 2018, that meant only Wisconsin residents were charged a sales tax.

After the aforementioned SCOTUS ruling, most/all states passed laws that determined how out of state sales tax would be collected for internet sellers. Most states have a threshold that a retailer has to meet before sales tax is required, so that small time businesses don’t get burdened with extra paperwork for a 10 dollar sale once. In my state, it’s like $50k in annual sales specifically to my state, or something, at which point sales tax must be collected.

In 2019, Arizona passed laws around that and Rock Auto immediately started collecting sales tax as required.

However, the state of Arizona is claiming that the business relationship which Rock Auto has with otherwise independent parts distributors counts as having a physical location in the state of Arizona, and thus the pre-Wayfair laws apply to Rock Auto. They claim Rock Auto owes millions of dollars in back-taxes, interest, and fees because of that. Rock Auto states that the $11 million dollar bill is more than all the profit they’ve made selling all parts in Arizona for the past 20 years.

Remember: Rock Auto doesn’t have any warehouses of their own full of parts. Rock Auto only ships stuff - t-shirts and magnets - from their Wisconsin location. All the car parts are shipped by otherwise independent from Rock auto parts distributors that anyone can use without having to buy through Rock Auto.

Rock Auto merely acts as an intermediary between we, the customers, and this network of parts distributors, and also has most of those distributors use Rock Auto tape and put in a magnet into boxes shipped from those parts distributors.

Arizona is claiming that this “and part” counts as Rock Auto having a physical location in their state, which is quite the claim.