Amazon to tax Arkansas online sales, could add more than $100 million to state budget coffers

State revenue collections will soon get a boost after online retail giant Amazon Inc. committed Friday (Feb. 10) to collecting sales tax on Arkansas online purchases in March, just as two bills move through the legislature that would require the online retail giant to do the same.

In a statement, Amazon said it would begin collecting sales taxes in Arkansas next month. The Seattle-based online shopping conglomerate declined to elaborate on its decision, which was first reported by Little Rock television station KATV.

Gov. Asa Hutchinson on Friday afternoon applauded Amazon’s stance as “laudable and good news for the state.”

“This step by Amazon has been voluntary and reflects the new landscape in which retailers recognize the practicality and fairness of sales tax being treated equally between online sales and in person store sales,” Hutchinson said. “This decision also shifts the responsibility of sales tax payment from the customer to the retailer at the time of checkout—providing further clarity and efficiency to the current and often misunderstood Arkansas law.”

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.”

But on Monday, Senate Bill 140 was approved by a vote of 23-9 in the Senate after Republican sponsor Sen. Jake Files of Fort Smith told fellow lawmakers his legislation would allow the state Department of Finance and Administration to capture between $30 million and $100 million in sales and use taxes not now collected. 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.

Files’ bill is expected to be taken up on Valentine’s Day (Tuesday, Feb. 14) by the House Revenue and Taxation Committee, chaired by Rep. Joe Jett, R-Success. A House version of similar legislation, HB1388, was also approved this week by the House in a vote of 54-16. Fourteen House members did not vote on the bill, while six others voted present. The bill was sponsored by Republican lawmaker Dan Douglas of Bentonville, home to Amazon rival Walmart Stores, Inc.

Many fiscal conservatives in both chambers have sided with the Arkansas chapter of the Americans for Prosperity (AFP), which opposed HB1388 and SB140.

The prospects of adding new revenue streams into the state’s budget coffers is also a key reason the so-called Internet tax bill is getting a stronger look in the 2017 session. Just a week ago, one day after enacting his $50.5 million tax cut for the state’s poorest workers, Hutchinson warned state agency directors to develop contingency plans in the face of January’s tepid tax collections.

“As everyone knows, lowering our state’s income tax rate has been a priority of mine from day one,” Hutchinson said. “This strengthened revenue stream will allow us to continue to make progress in cutting the income tax rate, making Arkansas more competitive with our surrounding states, and putting money back into the pockets of hardworking Arkansans.”

Support has coalesced around both bills as other states have enacted similar legislation and Amazon has increasingly shown more willingness to work with states to collect sales taxes on Internet purchases. Lawmakers in South Carolina, Mississippi, Idaho and Nebraska are also considering similar legislation.

Besides Arkansas, Amazon also recently announced this week it will start collecting sales taxes on Internet purchases in Oklahoma. The states in which shoppers are now subject to sales taxes on Amazon purchases are Iowa, Louisiana, Mississippi, Missouri, Nebraska, Rhode Island, South Dakota, Utah, Vermont and Wyoming.

The National Conference of State Legislatures estimated that states lost more than $23.3 billion in tax revenue in 2012. That same report shows that Arkansas lost an estimated $114 million in uncollected use taxes from all remote sales in 2012.

Amazon’s stance has changed in recent months as the online retail giant has continued to see strong growth, reporting net sales of $43.7 billion in the fourth quarter, up 22% from the same period a year ago. On Tuesday, Amazon announced that more than 33 million customers have used Amazon payments to make a purchase in 2016, double the previous year as the online retailer saw improved sales from government, travel, digital goods, insurance, entertainment, non-profits and charities.

“Amazon Payments connects merchants with customers that are accustomed to making purchases online,” said Patrick Gauthier, vice president, Amazon Payments. “By connecting with these customers, merchants are driving higher conversion, increasing sales and ultimately growing their business.”

The average Pay with Amazon purchase was $80 in 2016, with the largest single transaction being $40,000. Nearly 32% of transactions with Amazon were made on a mobile device, company officials said.

In January, Amazon announced plans to create an additional 100,000 full-time, full-benefit jobs in the U.S. over the next 18 months. Many of the jobs will be in new fulfillment centers that have been announced, including some already under construction in Texas, California, Florida, and New Jersey. Amazon plans to grow its total full-time U.S.-based workforce from 180,000 in 2016 to over 280,000 by mid-2018.