Money on the table

Lawmakers forgo sales tax collection online

Among unfinished business in the Arkansas Legislature this week was its failure to pass a bill on the collection of online sales taxes.

Gone with it was a last-gasp attempt to direct additional money to state highways and other needs.

Sponsors had claimed online sales tax collections might have produced as much as $100 million more tax revenue per year.

Highway officials were angling for any new collections above $15 million to go to roads. Legislation was referred to a Senate committee, but the bill went nowhere.

There are other interests vying for internet sales money, too, a point that state Rep. Dan Douglas, R-Bentonville, the House sponsor of the internet sales tax bill, made on Monday.

He said no fewer than 20 or 30 amendments had been proposed, including efforts to spend it on highways, tax cuts and other things.

He refused any more amendments on the scheduled last day of the session, asserting that the bill would have to pass or fail as it was.

It failed 43-50 with seven members not voting. The same measure passed the Senate earlier by a vote of 23-9 with two senators not voting.

The online tax issue is complicated. Although Arkansas’ online buyers are supposed to pay the state’s “use” tax (the legal flip side of the sales tax), few voluntarily do. They might, if it were collected at the time of purchase. But most online retailers don’t do that.

Therefore, lawmakers who have pledged not to raise taxes consider online sales tax collection a new tax. At least they fear their constituents would see it that way.

Meanwhile, the tax goes uncollected and the state suffers the revenue loss.

The online sales tax bill, proposed by State Sen. Jake Files, R-Fort Smith, is modeled after a South Carolina law that is currently under review in that state’s Supreme Court.

That’s another of the complicating factors with the bill. Opponents say it is unconstitutional. They cite a 1992 U.S. Supreme Court case that found that a state cannot require the collection and remittance of sales taxes by companies that do not have a physical presence, such as a store or distribution center, in the state.

Lawmakers on the other side of the issue argued that the bill addresses a “fairness” issue because brick-and-mortar retailers in Arkansas must collect sales taxes and remit them to the state while their online competitors do not have to do so.

Wal-Mart Stores Inc. and other retailers backed the bill. Amazon, the leading online seller in the U.S., has notably agreed to collect sales taxes in Arkansas and any other state that has a sales tax.

Nevertheless, the House of Representatives rejected Senate Bill 140 on Monday, the day the Legislature recessed.

The bill was intended to get larger Internet retailers to charge sales tax and remit the money to the state. The bill would have applied only to those companies without a physical presence in Arkansas whose gross revenue from Arkansas sales exceeds $100,000 or that had at least 200 transactions for delivery into Arkansas in the previous or current calendar year.

If they didn’t collect the tax, they were to report to the state Department of Finance and Administration the name and address of each Arkansas purchaser and the total amount paid and provide notice to each that the information had gone to the state.

Presumably, the latter provision would encourage Arkansas buyers to pay the use tax or enable the state to pursue collection.

Another session has ended without the Legislature addressing this ever-growing impact of e-commerce on state sales tax collections.

Significantly, Gov. Asa Hutchinson has said to count him as a supporter of the failed Senate bill. He, too, called it a matter of fairness.

“This will be resolved. It is just a matter of time,” he said.

He said a number of legislators have told him they want to continue to work on the issue.

“So we’ll see when that can be addressed in a future legislative session,” he added.

In the meantime, Arkansas buyers can get used to paying sales tax on Amazon purchases, if not others from out-of-state suppliers.