LR’s sales-tax receipts dip in 2016

City blames online buying for drop, calls on legislators to act

For the first time since a sales tax passed five years ago, Little Rock took in less sales-tax revenue in 2016 than the year before.

Officials blamed a number of factors, but mostly an increase in online sales in recent years. Online retailers are not required by law to collect local and state sales taxes on purchases unless the retailers have stores in the state.

“We do believe the impact of Internet sales has a lot to do with it,” city Finance Director Sara Lenehan said. “A recent Metroplan [planning agency] study shows Internet sales grew 35 percent [in the U.S. from 2010 to 2014.] They are now approximately 8 percent of total sales and are expected to be 12 percent of total sales [by 2025.]”

That’s bad news for municipalities where sales-tax revenue makes up a large portion of the budget. In Little Rock, sales-tax collections represent about 50 percent of budgeted revenue in the general fund.

“There are not words to tell you how bad this is for this city, or all cities in the United States,” City Director Dean Kumpuris said.

Kumpuris blames the U.S. Congress that has failed to pass the Marketplace Fairness Act, which would enable states to collect sales taxes from remote retailers.

Kumpuris asked city officials to send Arkansas’ congressional delegation the city’s monthly financial statements to show them “how our revenues failed in the face of a vibrant economy.”

“We need to tell them, ‘Look what you are doing to us. Get off your duff and do something about this. We are having a real problem. Get up or we are just going to die on the vine here,’” Kumpuris said.

“Fifty percent of our budget comes from tax revenues,” he said. “So if you have a negative flow of income and you have [salary] contracts with step increases in it, guess what’s going to happen. We will be two or three years from now where we were 10 years ago.”

Before the 1 percent sales tax started being collected in 2012, the city brought in $61.8 million in sales-tax revenue in 2011.

In 2012, that jumped 71 percent to $108.9 million. Officials assumed they would see 2 percent growth in collections each year.

But, those expectations weren’t met.

In 2013, the growth rate was just 0.7 percent, with $109.6 million in sales-tax revenue collected. The next year, $111.1 million was collected, representing 1.4 percent growth.

Growth was 3.8 percent in 2015 — the highest since the passage of the sales tax — with $115.2 million collected.

Then in 2016, the city experienced its first decline. The city collected $115,125,614, a 0.1 percent decrease from 2015.

Those totals include the city’s portion of the county’s 1 percent sales tax and a three-eighths percent portion of the city sales tax that is earmarked for capital improvements and is not included in the city’s general fund revenue. That portion of the city tax is set to end in 2021.

As cities and the state cope with falling revenue, Sen. Jake Files, R-Fort Smith, filed a bill — Senate Bill 140 — in the Arkansas Legislature that would assess local sales taxes on Internet sales from large companies that don’t have a physical operation in the state.

The bill cleared the House Revenue and Taxation Committee on Thursday after failing to get enough votes to escape the committee during three previous tries in the past month and a half.

Little Rock Mayor Mark Stodola and others said the bill had been held up because there were internal fights among lawmakers on how the state’s portion of the revenue would be spent.

“The debate over how that money is being spent at the state level is having a big detrimental impact on getting this passed. I don’t want cities to be a sacrificial lamb and stand on this issue in defeat because of what the state might want to do with the money as opposed to what we need the money for,” Stodola said.

Kumpuris asked last week for a list of every lawmaker on the House Revenue and Taxation Committee to be provided to members of the Little Rock Board of Directors so the city directors could try to persuade them to vote for the bill.

“Every one of these people represents a community, and every community is not going to get the money that would be beneficial to them because of this bill [if it doesn’t make it out of committee,]” Kumpuris said. “To me, tell them go find some place else to play politics. Don’t do it on the one that affects every community in this state.”

After finally passing in the committee, the bill will now go before the full House of Representatives on Monday, and some House members still are talking about potential amendments on how the money would be spent, said Rep. Dan Douglas, R-Bentonville.

But Douglas said running the bill on what is set to be the last day of the session means there isn’t time to amend it.

“It’s going to run just the way it is or die just the way it is,” he said Friday.

SB140 would require outof-state companies without a physical presence in Arkansas to collect sales and use taxes based on sales to Arkansans, if the seller’s gross revenue from sales subject to the state’s sales and use taxes exceeds $100,000 or the seller had at least $100,000 in transactions subject to the state’s sales and use taxes in the previous calendar year or the current calendar year.

If these companies don’t collect these taxes and remit them to the state, SB140 would require them to report each year to the state Department of Finance and Administration the names and addresses of their Arkansas customers and the total amount paid by each, and provide notice to each Arkansas purchaser that the information has been provided to the finance department.

The state Senate approved the bill earlier this session. Four days later, Amazon announced that it would collect state and local taxes on its sales to Arkansans beginning March 1.

Retailers send the money to the state, which then separates what is owed to cities and distributes that after taking a 3 percent administrative fee.

Little Rock leaders think the extra income from taxes collected on Amazon sales — which won’t show up on reports until May — will be noteworthy, but that it is only a small portion of the tax that should be collected on Internet sales citywide, they said.