JONESBORO, Ark. – The Arkansas House of Representatives approved legislation this week which could lead to state sales taxes being collected for online commerce conducted in The Natural State.
In a vote of 54-26 with 6 members voting present Wednesday, HB1388 was passed by the Arkansas House, moving on to the State Senate for consideration. The bill would require online retailers who do not have a physical presence in Arkansas to notify purchasers that state sales tax is due, or to just collect it themselves.
New Tax?
Many have erroneously referred to the bill as a “new sales tax,” but the tax is not new. State sales tax is already due for online purchases, confirmed District 60 State Representative Fran Cavenaugh. The issue is, there was no collection or enforcement of it.
If signed into law, HB1388 would begin the collection of data which would eventually lead to that enforcement. The bill states there must be a notice provided to the purchaser by January 31 showing the total amount of purchases made the previous year, unless the online retailer collects the sales tax themselves.
These options means Arkansans would most likely receive a yearly letter from retailers like Amazon.com showing their total purchases and what the buyer owes to the state in taxes. “Important Tax Document Enclosed” would be written on the letter. Alternately, the retailer could opt to collect and pay the state sales tax, itself.
Data Collection
A report would then be sent to the Director of the Department of Finance and Administration by the online retailer. Some social media opposition to the bill stemmed from worries about data collection, in this regard. The bill would authorize the director to collect three pieces of data: the name of the purchaser, the total amount paid by each purchaser to the seller during the immediately preceding calendar year, and each delivery or shipping address provided by the purchaser to the seller.
The bill says the enforcement rules must be decided upon later by the director.
But that is where HB1388 ends. Nothing from that point on compels the purchaser to pay the tax, Cavenaugh indicated Thursday, which means some other type of bill must be passed.
“There’s no enforcement on it,” Cavenaugh said. “My gut feeling is there is another bill coming.”
The district 60 representative said she voted against HB1388 because it was not clear where they money would go once it was collected.
“My biggest thing is, I want to know what we’re going to do with it,” Cavenaugh said. “What are we going to offset with it?”
The bill must still be passed by the Arkansas Senate and signed into law by Governor Asa Hutchinson before it becomes law.
The Need
While she may have disagreed with this measure in vote, Cavenaugh said she understands why physical storefronts are at a disadvantage to online retailers who aren’t paying the same taxes.
“If they’re going to compete with mom and pops, it is something we need to address,” Cavenaugh said. “I think it needs to be addressed on a federal level and not so much a state law, so it would be the same across the board for everybody but the biggest thing for me is, what are we doing with the money we are collecting before I agree to close this loophole.”
Many local businesses have had a changing dynamic since online retailers disrupted storefront commerce from the late 1990s. Stores like Circuit City, which once thrived, have gone bankrupt because shoppers can locate the television or high-end purchase they want in person, then find a cheaper version online and pay no taxes, and finally leave without giving the physical storefront a dime.
But a growing problem has mounted from this: as more people buy online, less money is being brought into local municipalities to fund police or fire protection, infrastructure, and other community essentials.
One local business owner who is passionate about supporting local agencies and groups is Gearhead Outfitters’ owner, Ted Herget. A short conversation with the cycling enthusiast and entrepreneur demonstrates his passion about why buying local is good – but why buying online can be the opposite.
“People should want a sales tax,” Herget said. “People should feel good about paying a sales tax. If they can’t find it here, people should hold their online retailers responsible and lean on them to charge sales tax just because of what it does and what it represents and who it funds! I will continue to say, if you do not believe in your policemen, in your firemen and the teachers, by all means, don’t pay the sales tax.”
Herget discussed how he had seen online discussion involving police officer pay in Jonesboro. One advocate for more police pay had made a comment about her recent purchase on Amazon.com of an item she could have purchased locally. Herget said with over 70 percent of the city’s fund coming from sales tax, she represented a tangible decision which made it harder to pay police officers what they deserve.
“We all benefit from that directly,” Herget said. “It is in our home state. It is voted in by the voters and it supports us. It’s not a tax that goes to Washington and supports war or leadership some people are against. It directly funds public schools, public education, universities, and more.”
Full Bill – HB1388
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