Arkansas moved one step closer on Monday (Feb. 6) to joining a list of more than 30 states that will force online retailers without a physical presence in the state to collect state and local sales taxes from online shoppers who frequent popular e-commerce sites such as Amazon.
Senate Bill 140, sponsored by Fort Smith Republican Sen. Jake Files, was approved by a vote of 23-9 after about 20 minutes of discussion on how the legislation will affect online consumers and retailers in Arkansas. Now, the bill will go to the Arkansas House, where it is also expected to face opposition from fiscal conservatives who call the measure an “Internet tax bill.”
In speaking for his bill, Files said SB140 was modeled after similar legislation in South Dakota and would allow the Department of Finance and Administration to capture between $30 million and $100 million in sales and use taxes not now collected. According to the study by the National Conference of State Legislatures, Arkansas lost an estimated $114 million in uncollected use taxes from all remote sales in 2012.
Files stressed several times on the Senate floor that his legislation was not a tax hike, citing emails he had received from some constituents and groups opposing the bill he said were spreading misinformation and mischaracterizing what was actually in the five-page proposal.
“This will transfer the onus from the buyer to the (online retailer),” Files said.
In the past, Arkansas has generally abided by federal legislation based on a 1992 Supreme Court decision, where the default rule in most states without any is that online retailers must collect sales tax on Internet sales to customers in those states where they have a so-called “nexus, or a physical presence.” Under Files’ legislation, any online retailer without a nexus in the state that delivers or sells their wares in Arkansas still must remit sales and use taxes if they have gross revenues exceeding $100,000 or had at least 200 separate sales transactions.
“This helps a lot of different people … and levels the playing field,” Files argued. “This will allow for Amazon, Overstock.com and other (retailers) to charge a state sales tax of 6-1/2% on the transaction.”
Last week, when HB140 cleared the Senate Revenue and Tax committee, which Files chairs, the Arkansas chapter of Americans for Prosperity urged lawmakers to oppose the bill.
“An internet sales tax is an unconstitutional cash grab that legislators should reject,” said David Ray, state director of Americans for Prosperity Arkansas. “The Supreme Court has held for the past 25 years that state laws have finite jurisdictions under the Constitution. Absent Congressional action, states do not have the power to force remote sellers to collect and remit sales taxes. The last thing Arkansas taxpayers need is a tax bill slipped into their online shopping cart.”
On the other side of the debate, the National Retail Federation has come out in support of similar legislation. The national retail group, which includes Wal-Mart Stores, Target and other brick-and-mortar retailers, says the disparity in sales tax rules undermines not only Main Street retailers but also the communities they support.
“The billions of dollars in lost sales tax is revenue badly needed by cash-strapped state and local governments to pay the salaries of essential workers such as police officers, firefighters, ambulance crews, and schoolteachers,” NRF said recently. “Those public workers are among retailers’ customers, and when customers lose their jobs retailers lose sales.”
According to legal website Nolo.com, the physical presence rule is based on a 1992 U.S. Supreme Court decision, Quill Corp. v. North Dakota, that addressed the obligations of mail order businesses to collect sales tax on out-of-state sales. The decision has been extended to include online retailers.
Ray said the Quill doctrine holds that, absent Congressional action, states do not have the power to force remote sellers to collect and remit sales taxes. In response to questions concerning the 1992 decision by the high court, Files said he consulted with Attorney General Leslie Rutledge’s office and believes his bill will stand up to constitutional scrutiny.
“I talked to the Attorney General’s office, they said this will not be a problem,” Files said.
Besides SB140, the Senate also approved several other bills on the calendar, including:
• HB1209 by Rep. Mark Lowery, R-Maumelle, which adopts a new higher education funding formula based on the institution’s success in advancing students. The state’s formula now is based on numerical enrollment and infrastructure costs.
The model would award funding based on credentials awarded, student progression toward degrees, time to degree, and other factors. More funding would be awarded for students enrolled in math and science and other high-demand majors, as well as students coming from challenging circumstances. Each student would be worth a certain amount of points. Still to be determined is a metric measuring post-completion success. Adjustments will be made for smaller colleges, which have higher administrative expenses, and research universities.
The model would cap across-the-board higher education funding increases or decreases at 2% per year. An institution could lose no more than 2% a year but could gain more. Funding changes would be based on three-year rolling averages.
• SB144 by Sen Eddie Joe Williams, R-Cabot, which would place a granite memorial on State Capitol grounds to honor the “Gold Star” families who lost loved ones in active duty military service. That bill was approved by a vote of 34-0 and now goes to the House, where it has strong support.