Widgets, Inc. has the hottest New Gadget to hit the market in an age. Widgets has stores in Louisiana, Illinois, New York, and Georgia, but has not yet opened a “bricks and mortar” store in Arkansas. Mr. Hitech lives in Jonesboro and the New Gadget is at the top of his wish list. He doesn’t want to hop into his new hybrid car and trek to Louisiana, so he logs on the Internet and discovers Widgets.com where he can purchase the New Gadget and have it shipped to his solar-powered Jonesboro home. Using his identity-protected credit card, Mr. Hitech purchases his New Gadget and it arrives at his home in 48 hours.
Mr. Hitech did what many Arkansans do on a daily basis – they make purchases over the Internet from stores with no “bricks and mortar” (or physical presence) in Arkansas without thinking twice about paying sales or use tax. Mr. Hitech thought about shipping costs, but not the tax due on his purchase.
The state tax loss from purchases like Mr. Hitech’s quickly adds up. It is estimated that Internet sales increased 27 percent from the third quarter of 2004 to the third quarter of 2005. In 2003, this vast increase resulted in an estimated revenue loss to states from uncollected use taxes at $8 Billion. Arkansas’ share of the $8 Billion loss is estimated to be $165.8 Million.