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Douglas: Time Has Come for Online Sales Tax in Arkansas

4 min read

Fortified by a U.S. Supreme Court decision, supporters of an Arkansas bill to collect taxes from out-of-state, online sales are confident the time has come for the legislation to pass.

HB 1002, a bill “to require certain out-of-state sellers to collect and remit Arkansas sales tax and use tax,” is making its way through the state House of Representatives and stands a solid chance of passing, said the bill’s lead sponsor, Republican Rep. Dan Douglas, R-Bentonville.

“We shouldn’t have a terrible amount of trouble,” Douglas said.

Past efforts to force a special session to deal with the issue and past attempts at legislation have been unsuccessful. But last year, in South Dakota vs. Wayfair, the Supreme Court overturned a previous ruling and voted 5-4 for South Dakota, siding in favor of states collecting online sales taxes.

That decision and the outcry of business owners in their home districts should be enough to prompt Arkansas lawmakers to pass HB 1002, Douglas said.

“This bill will stand constitutional muster,” he said. “Everything should be fine there.”

The Wayfair decision overturned 1992’s Quill vs. North Dakota ruling, which was originally upheld by a lower court before Wayfair moved to the Supreme Court with the support of 40 states.

The 1992 Quill decision stated that the Quill Corporation, an office supply retailer doing business via mail and phone orders, could avoid paying local taxes. Out-of-state businesses have since used the decision as a legal defense for not collecting taxes in states where they had no physical location.

After passing an online sales tax law in 2016, South Dakota sued home goods site Wayfair, discount retailer Overstock.com, computer hardware and electronics retailer Newegg and industrial equipment supplier Systemax for non-compliance.

Douglas said HB 1002 was modeled after the South Dakota online sales tax bill and he cast it as an overdue way to ensure fairness for the physical business owners and retailers of Arkansas. He relayed retailers’ anecdotes of customers entering shops, photographing bar codes, labels and tags and then leaving to order the same items online.

“The thing we have to remember too is these local retailers, these brick and mortar retailers, not only do they collect and remit sales tax, but they hire local people and they create jobs and they pay property taxes and income taxes,” Douglas said. “They pay a lot of taxes to help support our local communities and schools. We’ve got to be as fair to them as we can.”

Douglas said it was difficult to determine exactly how much in annual, uncollected tax revenue online retailers represent. He cited a Department of Finance and Administration estimate of $35 million-$38 million, but said that doesn’t account for third-party or marketplace retailers who simply use online companies like Amazon as brokers.

“I think that sounds like it’s as good a guess,” Douglas said of the revenue estimate. “If it’s more than that we’ll be pleasantly surprised. If it’s less, well, then it is what it is. We’ve just got to make sure the field is leveled for our brick and mortar retailers and they’re not put at a disadvantage.”

“The numbers have been all over the board. It’s a lot,” Arkansas Municipal League General Counsel John Wilkerson said. “We’ve seen numbers from 10-odd-million to some 100-odd-million dollars.”

Online retail giant Amazon began to voluntarily collect and remit sales taxes in 2017. Walmart has collects and remits sales taxes on online purchases in states that have a sales tax.

In 2017, the Municipal League tried unsuccessfully to force Gov. Asa Hutchinson to call a special legislative session to deal with the online sales tax issue. A bill introduced in the state senate that year also failed to pass.

But Wilkerson agreed the Supreme Court’s Wayfair ruling has cleared the way for the Legislature to get on board with what he described as “common sense fairness.”

“We’re using the same page of the hymnal at this point,” Wilkerson said.

HB 1002 is in the House Revenue and Tax Committee, which met Tuesday, but the bill did not come up. Douglas forecast passage in possibly two weeks, depending on developments with the governor’s income tax cut plan and other legislation.

“What we’re waiting on is to try to see where we end up with the governor’s tax cut bill and then there’s another bill, a business operating loss bill, that’s coming out, and we’ll try to pair it with that,” Douglas said.

Legislators in the committee approved the governor’s income tax plan.

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