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Amazon Has Not Delivered a Sales Tax Windfall, So Far

5 min read

The Amazon sales tax windfall hasn’t arrived in Arkansas yet, at least not resoundingly.

Amazon, the online retailing goliath based in Seattle, announced last February that it would start collecting sales tax owed on purchases made by Arkansas residents. In the immediate aftermath of the decision, which took effect March 1, speculation centered on how much money it might add to state coffers.

The early, non-exact results are in: more, but not as much as predicted by many.

“No, not really,” said Walter Anger, the commissioner of revenue for the state’s Department of Finance & Administration, when asked if Amazon’s collections had increased tax revenues. “I don’t think there has been any noticeable differences. One account really isn’t going to make much of a difference no matter who they are.”

Anger couldn’t say how much Amazon has handed over in taxes since it became a registered account with the state, collecting and remitting sales tax from customers. Confidentiality laws prevent the state from divulging how much it collects from any one taxpayer. After Amazon began collecting sales tax for Arkansas, the DF&A reported an increase in sales tax revenue in six of the following eight months.

March 2017 saw state sales tax collections rise to $171 million, up from $158.8 million in the same month of 2016. In April 2017, collections were $185.1 million, up from $170.4 million the year before.

Other months have seen smaller increases. In August and September 2017, receipts were slightly lower — less than $1 million each month lower — than the same months of 2016.

Even the months with increased sales tax revenue cannot be credited solely to Amazon. The national economy continues to chug along and consumer confidence is high, factors that would lead to Arkansans buying more goods, whether from Amazon or Walmart Inc. or the neighborhood mom-and-pop store.

Legality & Loopholes
“I wasn’t surprised,” Anger said. “You can’t go off what [projections] people are saying. It is a very hard projection to make, as far as we’re concerned. You don’t know the habits of the people of the state of Arkansas, how many [purchases they make].”

State Rep. Dan Douglas, R-Bentonville, sponsored an ultimately unsuccessful bill in the Arkansas Legislature this past session to have online companies collect and remit sales taxes. Douglas admitted the revenue produced so far by Amazon’s voluntary program is less than he thought it would be.

“Certainly we are seeing some sales tax effects from that,” Douglas said. “I’ll be quite honest: It has not been as big an effect as originally was thought or hoped for when they first announced that. It’s a number that is like trying to hold down Jell-O. Overall we have seen the sales tax numbers coming up. How much is economy and how much is Amazon? We don’t know. I know it sure hasn’t hurt us.”

Another factor that may have diluted Amazon’s tax effect is the fact that the online company is as much a marketplace as it is a retailer. When Amazon collects and remits sales tax, as it does voluntarily in most of the states that have sales taxes, it does so only on items purchased directly from Amazon.

But many of the items sold and shipped through Amazon are from third-party vendors. Amazon has said that as much as half of its business is through these vendors, and the company does not collect taxes on those sales.

“The problem is that over 50 percent of Amazon’s sales are, in general, not Amazon specific,” said Charlie Spakes, president of the Arkansas Grocers & Retail Merchants Association. “I think at some point we have to have a bill that addresses that. While it is great they are doing it on their own stuff, but they’re only doing 50 percent. The other 50 percent needs to be collected on. It’s already due, and it’s something that needs to happen.”

Arkansas legislators considered bills last year to address the online sales tax issue. In 1992, the U.S. Supreme Court ruled in Quill Corp. v. North Dakota that a state could not force a retailer to collect and remit sales tax if the company did not have a physical presence in the state.

That has allowed online companies, a large and growing part of the country’s economy, to flourish as tax-free shopping markets. Brick-and-mortar retailers have howled in protest because they say out-of-state sellers have a built-in tax-free advantage.

Waiting Game
Separate Senate and House bills in Arkansas failed to pass in 2017. Proponents of the sales tax were encouraged, though, that the U.S. Supreme Court let stand a Colorado law that would pressure online retailers to collect sales taxes or inform every Colorado purchaser that they have to pay the tax.

In January, the U.S. Supreme Court agreed to hear South Dakota v. Wayfair Inc., an Amazon-style law that observers believe could result in the overturning of Quill in 2018.

Spakes and others believe that if Quill is overturned, a number of states will pass laws or Congress will pass an overarching online sales tax law.

“There were legislators that said during the session, ‘What you’re doing is unconstitutional,’ and that’s because of the Quill decision in 1992,” said Douglas, the lead sponsor of House Bill 1388, which was modeled on the South Dakota law now being considered by the Supreme Court.

“If it is a positive ruling in favor of South Dakota, and they say it is legal to require collection and remittance of nonresident retailers, I think that would make a huge difference. What needs to happen is Congress needs to act so we have the same rules, regulations and laws throughout the country instead of 45 different states having their own requirements. We know how Congress is right now.”

(Four states have no sales tax levies: Delaware, Montana, New Hampshire and Oregon. Alaska has no state-level sales tax.)

Opponents of the online sales tax movement are obviously hoping the Supreme Court upholds Quill and allows online retailers to continue to be duty-free zones. Many expect Amazon will revert back to noncollection if Quill is upheld, and many more online companies, big and small, would be affected by any new law or standard.

Washington County Tax Collector Bobby Hill said reading between the lines of a recent DF&A distribution report led him to believe the county received $38,000 from Amazon sales in October. He opposes what he considers a new tax; proponents argue that the tax is already due, even if the seller doesn’t charge it and the state doesn’t know about it.

“Even if it’s not a new tax, it’s new to you if you start paying it,” Hill said.

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