Lawmakers on Monday closed out the 2017 session by rejecting the so-called Amazon tax bill, which would have allowed remote retailers to collect and remit sales and use taxes from an increasing number of Arkansas taxpayers who shop online.
Senate Bill 140, sponsored by Sen. Jake Files, R-Fort Smith, was defeated on the House floor by a vote of 43-50, with seven members not voting. House sponsor, Rep. Dan Douglas, R-Bentonville, made the argument that Arkansas needs to join the growing list of states that will allow 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.
In the past, Douglas said 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.
Douglas 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.
“Technology has outpaced our laws. It is a new day and age,” Douglas said. “In 1992, nobody ever thought about ordering anything over the Internet.”
Douglas added that he believes the U.S. will soon overturn the 1992 decision, opening the door for Arkansas to begin collecting possibly hundreds of millions of dollars in sales and use taxes from Internet sales.
“When it is (overturned), we need a bill in place, a law in place that tells these retailer merchants without a retail presence (in Arkansas) that they have an economic nexus to the state and they are subject to Internet sales tax,” Douglas said.
After Douglas finished his speech, Rep. Stephen Meeks, R-Greenbrier, told his House colleagues that the issue of Internet sales tax does need to be addressed, but not by the Arkansas General Assembly. He said the U.S. Constitution gives Congress the authority to collect taxes between states.
“This is not a state issue. This is a federal issue,” Meeks said. “This is interstate commerce. This is one of the powers that is granted only to Congress.”
After Files’ SB140 was approved by vote of 23-9 in the Senate in early February, Amazon.com committed to collecting sales taxes on Arkansas online purchases on March 1. Those revenues will begin showing up in Arkansas tax collections in the April revenue report, approximately a month from now.
In late March, Amazon announced that it would begin collecting sales taxes nationwide in 45 states on April. Alaska, Delaware, Oregon, Montana and New Hampshire don’t collect sales taxes. After the House vote on SB140, the head of the Arkansas chapter of Americans for Prosperity expressed some relief that the bill died on the House floor.
“This was the right thing for the House to vote this bill down,” said AFP State Director David Ray. “The fact of the matter is, at the end of the day, $100 million would have been in the pocket of the state and $100 million less would have been in the pocket of the citizens.”
Ray also defended his group’s communications to lawmakers calling SB140 a tax hike, a point that Douglas and fellow Republican lawmaker, Rep. Charlie Collins of Fayetteville, took offense to in debate on the House floor.
“People want to quibble about whether this is a tax increase or not a tax increase. But it certainly functions as one,” Ray said. “Rep. Collins made the argument that ‘Oh, we are going to put this all toward income tax cuts,’ but there is nothing in the bill that says that.”
Now, that Arkansas has no legal way to collect Internet sales tax from online retailers other than Amazon, the debate will likely be taken up by the newly authorized Blue Ribbon tax panel that will begin meeting shortly after the session enters recess.
Senate President Pro Tempore Jonathan Dismang, R-Searcy, said last week he and other legislators have held “broad-based” discussions on the possible makeup of the Arkansas Tax Reform and Relief Legislation Task Force, the Blue Ribbon panel created under the emergency clause of Gov. Hutchinson’s $50.5 million tax cut to reform Arkansas’ tax code.
By law, the task force must hold its first meeting within 30 days after the session ends. Dismang also said there were some anxieties among lawmakers about the state’s revenue picture. The Senate leader said he plans to speak with the governor in the coming days to discuss possible scenarios if the state falls short at the end of fiscal 2017.
The state will release its March revenue report on Tuesday, April 4. DFA officials have said they expect a shortfall in corporate tax collections due to an Internet Revenue Service filing change. Gov. Hutchinson, speaking to reporters at the State Capitol after the House and Senate recessed, called the session one of the most successful, pro-growth and pro-business sessions in recent state history.
“Over the past 84 days the Arkansas General Assembly has worked hard to institute policies that make our state a better place to live, work and raise a family,” he said. “I applaud the legislature’s work this session to spur economic development, improve education and raise the quality of life for all Arkansans.”