Panel in Senate backs proposed online-sales levy
Measure also would change corporate income-tax code
A state Senate committee advanced legislation Wednesday to require online sellers with no physical presence in Arkansas to collect sales and use taxes from in-state purchasers and make changes in the state’s corporate income-tax code.
In a voice vote, with Sen. Keith Ingram, D-West Memphis, dissenting, the Senate Revenue and Taxation Committee recommended approval of Senate Bill 576 by Sen. Bart Hester, R-Cave Springs.
Out-of-state remote sellers without a physical presence in the state would have to collect and remit sales taxes on annual sales of more than $100,000, the state Department of Finance and Administration said in a legislative impact statement on the bill. Alternatively, such sellers would be required to collect sales taxes if they sold products and services for delivery in Arkansas on at least 200 separate transactions.
SB576 also would phase in a reduction in the state’s top corporate income-tax rate from 6.5 percent to 5.9 percent, phase in an extension of the five-year carry-forward period for businesses’ net operating losses to 10 years, and provide for a single-sales factor for the apportionment formula used by corporations for income-tax filings.
The legislation also would provide a sales-tax exemption for certain providers of carwash services, exempt from sales tax all purchases for carwash operators and levy a new annual fee on certain carwash operators, and monthly water-use fees on operators of carwash tunnels.
Ingram said the carwash changes are “a sore thumb in the bill.”
Officials for the Arkansas State Chamber of Commerce, National Federation of Independent Businesses and Arkansas Homefurnishings Association testified in support of the bill, while the chief financial officer for Zips Car Wash testified against it.
“We have all worked on this legislation for a long time. Some of these issues have been important to and advocated for by the chamber for years,” said Randy Zook, president and chief executive officer for the Arkansas chamber.
“The chamber is completely supportive of this legislation, and we would urge you to vote for it,” he told the committee. “I can think of nothing that can make Arkansas more competitive as a place to invest and grow a business. Nothing can improve that climate any more than this piece of legislation.”
Zook said he hopes the bill will move the state “off the 10 worst list” for business tax climates in the nation, noting it ranks 46th among the 50 states.
The bill’s Internet salestax financial thresholds are identical to those imposed by South Dakota that were upheld by the U.S. Supreme Court in South Dakota v. Wayfair in 2018, the finance department said.
“The bill provides that the tax collection responsibility would not be applied retroactively, and businesses would be subject to the provisions only upon the effective date of the act,” on July 1 of this year, the finance department said. The sales thresholds would apply to the previous calendar year or the current year.
SB576 also would require “marketplace facilitators,” such as Amazon or eBay, that sell or facilitate sales for their participating sellers to collect and remit applicable state sales taxes on all sales conducted through the marketplace, according to to the finance department.
The finance department projects that these requirements would raise $32.4 million of state general revenue in fiscal 2020 based on 11 months of deposits and $35.3 million in fiscal 2021 based on 12 months of deposits.
SB576 also would reduce the state’s top corporate income-tax rate of 6.5 percent to 6.2 percent for the tax year beginning Jan. 1, 2021, and further to 5.9 percent for the tax year beginning Jan. 1, 2022. That would reduce state tax revenue by $9.8 million in fiscal 2021, $29.5 million in fiscal 2022, and $39.3 million in fiscal 2023 and subsequent fiscal years, according to the finance department.
Extending the five-year carry-forward period for net operating losses for businesses to 10 years would begin to reduce state tax revenue in fiscal 2026 by $8.4 million, $24.8 million in fiscal 2027, $40 million in fiscal 2028 and eventually $75.3 million in fiscal 2032, according to the finance department.
Changing the apportionment formula for multistate corporations from three factors to a single-sale factor would increase state tax collections by $357,135 in fiscal 2021 and $714,270 in fiscal 2022 and succeeding fiscal years, according to the finance department.
SB576 would change existing law to provide that the sales tax does not apply to sales to a carwash operator or on sales by a carwash, including ancillary services provided by a carwash in conjunction with the sale of a carwashing service. It would levy monthly fees based on the amount of water consumed to “car wash tunnel” operators and annual fees on “automatic car washes” and “self-service car washes,” according to the finance department.
Carwash tunnel operators would be assessed water usage fees based on multiplying the total number of gallons used the previous month by 0.9 and then multiplying that by seventy-five hundredths of a cent to determine the monthly fee due, the finance department said.
Carwash operators with only “self-service bays” would be charged an annual $100 fee per bay, and those with only “automatic car washes” would be charged a $500 fee per year for each automatic carwash.
These changes for carwashes are projected to reduce state tax revenue by $800,000 to $1.2 million a year, including a $2.1 million loss in sales-tax revenue from carwashes, and a $1.1 million gain from carwash tunnels and a $423,360 gain from annual fees on automatic carwashes and self-service bays, according to the finance department.
Hester said that “we just tried to find a happy compromise in here, knowing the carwash industry is changing drastically.
Sam Neely, chief financial officer for Zips Car Wash, said the bill that would change the taxes for carwashes is unfair and would cost the company’s 16 carwash tunnels more than $440,000 a year in state taxes. He warned that the changes would make the company less likely to invest in the state.
But Hester told the committee that “my intent was that if the guy put in an automatic carwash somewhere, not to cripple them if they are in Carroll County or in rural America.
“We know the entire carwash industry is moving toward the tunnels. That’s why we focused there and not being too punitive to the others,” he said.
The bill’s Internet sales-tax financial thresholds are identical to those imposed by South Dakota that were upheld by the U.S. Supreme Court in 2018, the finance department said.