Down to the Wire: Tax Task Force Looks at Internet Sales

The Arkansas Tax Task Force has a lot of work to do and a few short months left to do it. If you aren’t familiar, this group of 16 Arkansas elected officials are working to revamp the Arkansas tax code from head to toe. They have scrutinized the sales tax, property tax, and income tax, as well as fees and miscellaneous revenue streams and anything else that contributes to tax revenue in our state. In their most recent meeting on February 5, they looked at the sales tax and why it is so complicated to collect from online purchases. They are poised to start formulating broad recommendations soon.

The group was created in the 2017 legislative session, and their stated goals are to modernize and simplify our state tax system, while also improving fairness and attracting new businesses and jobs. However, while their stated goals are to modernize and simplify the state tax system and improve economic competitiveness, a major focus of their work is to cut taxes. If adopted during the 2019 legislative session, their recommendations on how much to cut taxes could have profound impacts on the ability of future state budgets to support critical services for children and families.

Their final report on how exactly to do all of that is due soon – in September of this year. Because of this approaching deadline, the group of state representatives and senators will start having two-day meetings (instead of the usual three-to-six-hour ones) beginning next month. The dates for the next meetings, all of which are open to the public, are:

  • March 19th and 20th
  • April 25th and 26th
  • May 23rd and 24th
  • June 20th and 21st

You can access the full calendar of legislative events at the Arkansas State Legislative website here.

During the most recent convening on February 5, the Task Force heard from state agencies about the technicalities and history of difficulties in collecting state sales taxes from online retailers. You may remember a few bills from the 2017 session that tried to get around the tricky rules governing sales taxes on online business sales (think places like Amazon, although this company has since elected to voluntarily start collecting sales tax).

Strictly speaking, making online retailers collect Arkansas sales tax isn’t a new tax. Arkansans already owe taxes on the things we buy online, regardless of whether the retailer collects the tax owed from us. The wrinkle is that few Arkansas consumers realize they owe taxes on online purchases, and even fewer elect to send in that extra form to the state of Arkansas to pay it. That makes for a lot of technically “delinquent” taxpayers. The debate on whether enforcing online sales tax payments makes it a “new” tax or not does not appear to be cooling down.

State agency representatives explained that the Quill V North Dakota supreme court decision is still a huge roadblock for states who want to collect sales taxes from goods purchased online. This “Quill” decision says that states cannot collect sales taxes from a business unless that business has a “physical presence” in the state. Many believe that this decision is outdated, given that it was made in 1992 and therefore before world-commerce-changing landmarks like Amazon, Google, and eBay came on the scene.

The Arkansas Bureau of Legislative Research pointed out that online purchases will make up 17 percent of all U.S. retail sales by 2020. That would represent a huge loss to sales tax revenue if those purchases evaded sales tax collections. They also pointed out a potential game changer coming up this June: the South Dakota v Wayfair hearing. This decision has the potential to open up (or further shut down) options for states to enforce online sales tax collection laws.

If the Supreme Court decision allows states to collect taxes from businesses without a “physical presence,” it could open the door for a relatively painless way to increase tax revenue in Arkansas. “Painless” since it is new revenue, and technically not a tax increase at all (since we all already owe it). This decision will certainly have an impact on the types of online sales tax legislation introduced in the Arkansas general session which begins in early 2019.

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