Little Rock elected officials aren’t giving up on the possibility of state lawmakers fixing an online sales tax-collection gap that leaders have said results in the loss of millions of dollars of revenue for cities, counties and the state each year.
The Arkansas General Assembly attempted to pass a bill in the recent legislative session that would have required larger online retailers to collect local and state sales and use taxes and remit those collections back to Arkansas, which would then send cities and counties the portion due to them.
The measure passed in the state Senate at the beginning of the year, leading to online retailer Amazon voluntarily starting the collection of Arkansas sales taxes in March.
But Senate Bill 140 failed to pass through the House after being held up in a House committee for several weeks. Some officials said lawmakers refused to pass the measure because of disagreements on how the extra state revenue would be spent.
Little Rock leaders — namely City Director Dean Kumpuris — chastised lawmakers for “playing politics” with something that would benefit every locality in the state.
The state Legislature recessed earlier this month, but Kumpuris and City Director Lance Hines have another idea for the assembly to consider when it reconvenes for a planned special session next month.
The two directors introduced a resolution before the city Board of Directors this week that requests Gov. Asa Hutchinson and the General Assembly to put in place a law similar to one in Colorado that wouldn’t require online retailers to collect local sales taxes but would require them to send customer information to the state so the state and cities could then attempt to collect the taxes.
The Legislature already attempted to pass such a bill during this session. It was House Bill 1388 and it was modeled after the Colorado language. It passed the House and made it out of a Senate committee, but didn’t come up for a vote before the session convened.
Sen. Jake Files, who sponsored SB140, said some senators felt that HB1388 was more intrusive than SB140. Files said he doesn’t think the bill had the support to pass through the Senate.
But Hines, the Little Rock city director, said Little Rock needs the Legislature to pass the bill in order for the city to take online retailers to court over sales tax collection. Without a state law that would require the retailers to share customer information with the state and cities, the city can’t sue because it wouldn’t know what taxes are going uncollected, Hines said.
Sales taxes are already due on online purchases. Customers are supposed to turn in a form on their purchases at the end of the year and pay any city, county and state sales taxes due on those items. But that rarely happens, and without knowing who buys from where, the state can’t enforce the collection.
“I think this is the absolute thing we have to do,” Kumpuris said at a recent city board meeting. “[We have to] continue exploring different avenues on how we can collect this tax. We’re suggesting to work with the Legislature on how to do this, and [City Attorney] Tom [Carpenter] has been good enough to research this and find out that with a couple tweaks in our law we can apply the Colorado law to collecting this. Nothing is ever easy, but at least it is an avenue we could start pursuing.”
Kumpuris suggested that if Little Rock passes the resolution, the city should encourage every other municipality in the state to pass similar resolutions and send them to their state representatives and senators.
Carpenter estimated the collection of sales tax on Internet sales made in Little Rock would increase the city’s coffers by about $10.5 million annually.
That number is based on the city’s current sales-tax collections and a U.S. Census Bureau report from February that noted more than 8 percent of all sales are made on the Internet. Carpenter said he is looking into his calculation to get a more accurate estimate.
Little Rock Mayor Mark Stodola said he wasn’t sure whether collecting the tax on Internet sales would increase the city’s revenue by that much, but he said the increase would be substantial.
Carpenter said the 10th U.S. Circuit Court of Appeals upheld a similar law last year, and the U.S. Supreme Court refused to hear the case on appeal.
“The significance is not only in terms of funds available to the city to meet the needs, but the significance is also that Little Rock vendors [with physical stores in the city] are at a $10 million disadvantage” compared with online retailers, Carpenter said.
Hines said the case law that makes it so that only stores with a physical location have to collect local sales tax was decided before the Internet. He said if Little Rock could re-try that case now, there would be a new argument to consider.
“That decision was done before the Internet ever came to fruition. I think if you are on the Internet in your home, you are physically connected to that server and to that online retailer,” Hines said. “The city of Little Rock wants to be able to file suit and go to court and try to re-try this case. Let’s quit trying to do this at the Legislature and let’s let the city of Little Rock take this on. But we have to have this law in place in order to do that.”