Fort Smith Mayor Sandy Sanders believes the Amazon-inspired “eFairness” bill (SB 140), filed on Jan. 18 by Sen. Jake Files, R-Fort Smith, could help the city meet police and fire pension obligations if it would include local tax collections.
Sanders had concerns about the lack of a local benefit in the bill, which would enforce an existing 6.5% sales tax at the state level on online sellers, who perform more than $100,000 in sales or 200 or more transactions in-state over the course of a calendar year.
Files has estimated that the bill, if approved and signed into law, would result in a revenue boost of at least $100 million for the state. But unless the full amount of state and local taxes are collected from online sellers — a more challenging task given rates vary from one community to the next — then cities like Fort Smith would not see the financial benefit, at least under the current configuration. However, Files said any revenues generated would likely be redirected into a tax benefit for Arkansas residents. When a brick-and-mortar business processes a transaction in Fort Smith, the merchant collects 9.75%. Two percent is held out for city government; 1.25% goes to Sebastian County; and 6.5% to the state.
Sanders told Talk Business & Politics estimates he had heard placed potential revenue generation from online transactions at around $113 million. Using that figure and dividing it by three million Arkansas residents would result in a per capita revenue generation of $37.66 per person. Multiplying that number times Fort Smith’s population of approximately 88,000 places the potential revenue for the city at just over $3.3 million.
“That kind of money would go a long way in helping with things like police and fire,” Sanders said, referencing in part the $2.1 million LOPFI pension shortfall the city faces each year.
At the city’s current rate of contribution, the fund will become insolvent by 2021.
Files said he understood local concerns and seemed confident legislators would as well, noting “the people contributing in our communities have a lot of stake in it.” Files said the goal was “not to cut anyone out, but to expand the base.”
Files said he would have “no objections trying to work cities into” the legislation, but said what is problematic in that is, “for (an online seller) to figure out the state tax rate is one thing; but for them to figure out the tax rate in Huntington or Sebastian County, is totally different.” Files said it may be “too cumbersome to pick up in this first batch, but I think it will be there, and I think it’s coming.”
Files suggested seeing how much revenue the tax generates and then “coming back to negotiate with the cities and counties, and see if we can come back to the Turnback percentages to make that accurate.” Files acknowledged that feelings about the bill “are all over the place.” Some, he said, have commended it, “but others think it’s a horrible idea.”
“They’ll say, ‘Why are you trying to raise my taxes?,’ and it’s really hard to explain to them that the tax is already on the books when they’re not paying it,” he added.
The tax would apply to physical goods shipped through a postal carrier and electronic goods, such as eBooks, music, movies, and other intellectual properties transferred electronically provided the seller meets the $100,000 or 200 transaction-per-year threshold. This would definitely encompass major online sellers like Amazon, Apple, Google, and Overstock.