Online companies that do not already collect sales tax in Arkansas will not be forced to do so by state law after a controversial bill aimed at collecting sales tax on purchases from online merchants failed in a 43-50 vote in the House Monday.
Senate Bill 140 would require online sellers that gross more than $100,000 or process at least 200 separate transactions to collect sales tax or to report annually to the state Department of Finance and Administration information about online sales in Arkansas, including the name and address of each Arkansas purchaser and the amount of money spent.
The House sponsor for the bill, Rep. Dan Douglas (R-Bentonville), said "our Main Street businesses are suffering" because online sellers do not collect and remit sales tax.
"We have to catch up with the times and that's what this bill attempts to do," Douglas said.
Critics of the bill said it would be a new tax. Proponents of the bill said online purchases were the modern equivalent of catalog purchases, and therefore should be taxed according to a 1949 law that established the collection of use tax on goods used within the state but sold by out-of-state sellers, mainly through catalogs.
"This is not a state issue. This is a federal issue," said Rep. Stephen Meeks (R-Greenbrier), speaking against the bill. Meeks referenced Section 8 of the U.S. Constitution, which gives the U.S. Congress purview over interstate commerce.
Meeks also raised concerns about the bill's reporting requirements. "We're asking these companies to tell on the citizens of Arkansas who aren't paying their taxes."
Speaking against the bill, Rep. Bob Ballinger (R-Berryville), said it would lead to a new tax burden for Arkansans.
"As it is right now, we have citizens who are not feeling this burden. This burden is not on their back. I understand their is a use tax out there. We're creating an internet sales tax that they are going to feel."
Ballinger said the legislature needs to commit to use any new revenue to lower income taxes. "We have to take a burden off if we're going to put a burden on. That's the only way I could ever support a new tax," he said.
The question of how to spend potential new revenue collected by online sellers seemed to plague the bill. Several proposals were filed in an attempt to predetermine how the money would be spent, including bills that would have required income tax reduction, sales and use tax reduction and one that would deposit money in a fund to be used by the General Assembly.
For almost two months, the bill was held up in the House Revenue and Tax Committee, having failed three times before finally passing last week. Democrats on that committee attempted to amend the bill to earmark potential new revenue to the Medicaid Program Trust Fund, and to fund rural fire and police protection grants, pre-K education, after-school programing and highway repairs.
After the bill failed to pass the House on Monday, Sen. Jake Files (R-Fort Smith) said he was disappointed in House Democrats for holding the bill in committee for so long. Democrats hold half of the seats in the House Revenue and Tax Committee, giving them more power on that committee than any other in the legislature.
"Had they let this out even a week ago, I think we were at a point were we could have voted it and then worked with some of the members to see where their concerns were," he said.
Files also said, "This was a vote that took some political courage.
"The main reason it didn’t pass was there was some confusion as to if it’s a new tax. I think the Senate got passed a lot of these issues, but the House never seemed to and a fair amount of House members insinuated they would get a primary opponent" if they voted for the bill.
A similar bill that would require the collection of online sales tax, House Bill 1388, was on the calendar in the Senate Monday, but Files said after SB 140 failed to pass the House, there was not enough support to pass HB 1388, so he decided not to run it.
"We’re going to be taking steps backwards and not deal with a issue that needs to be dealt with," Files said, adding that internet sales tax is an issue that needs to be addressed by a pending tax reform task force.
Lawmakers have speculated that sales tax collected by out-of-state online sellers could annually bring anywhere from $35 million to $150 million in revenue to the state, but, according to the Department of Finance and Administration, the revenue impact of SB 140 is unknown. There is no record of what Arkansas taxpayers are buying on the internet.
Amazon began voluntarily collecting sales tax on purchases made by Arkansas residents in March.
This reporting is courtesy of the Arkansas Nonprofit News Network, an independent, nonpartisan news project dedicated to producing journalism that matters to Arkansans.