Amazon to collect taxes on state sales

Seattle-based Amazon on March 1 will begin collecting taxes on its sales to Arkansans and paying those taxes to the state government, Amazon spokesman Jill Kerr said Friday.

Amazon's announcement came four days after the Arkansas Senate voted 23-9 to approve legislation aimed at persuading Amazon and some other companies that have no physical presence in Arkansas to collect taxes on their sales and remit the receipts to the state.

The legislation is Senate Bill 140 by Sen. Jake Files, R-Fort Smith, who said he modeled it after a bill in South Dakota that ultimately led Amazon to begin collecting sales and use taxes in that state.

Kerr declined Friday to explain why Amazon decided to begin collecting taxes on Arkansas sales or make any other comment.

Files said Friday that he's "a little bit surprised" but that Amazon officials "recognize it has a constitutional merit and it is the right thing to do."

He said he's seen a 2014 projection that the added online sales-tax collections would amount to about $32 million a year and other estimates that they would be more than $50 million a year.

"I don't think $50 million is out of the question," Files said.

He said Amazon's announcement will give a legislative task force considering future tax cuts "some momentum" to begin its discussions about overhauling the tax code and providing more relief to taxpayers.

Gov. Asa Hutchinson said Amazon's announcement is both fair and laudable.

Arkansas will join the other 38 states in which Amazon is collecting and remitting sales taxes, the Republican governor said. Customers are supposed to pay online sales taxes already, but the law is "often misunderstood." The change "shifts the responsibility of sales tax payment from the customer to the retailer," he said.

"As everyone knows, lowering our state's income tax rate has been a priority of mine from day one. This strengthened revenue stream will allow us to continue to make progress in cutting the income tax rate, making Arkansas more competitive with our surrounding states, and putting money back into the pockets of hardworking Arkansans," Hutchinson said in a statement.

Last week, Hutchinson signed into law legislation that would cut individual income-tax rates for Arkansans who make below $21,000 in taxable income starting in the tax year beginning Jan. 1, 2019. It's projected to reduce general revenue by about $25 million in fiscal 2019 and $50 million a year thereafter.

In 2015, the governor signed other legislation that cut individual income-tax rates for Arkansans with taxable income between $21,000 and $75,000. That law is projected to reduce state general revenue in fiscal 2017, which started July 1.

Seven months into fiscal 2017, net revenue available for state agencies has increased by $22.3 million, or 0.7 percent, over the same period in fiscal 2016 to $3.16 billion, but that's $57.1 million, or 1.8 percent, below the state's forecast. That prompted Hutchinson last week to ask directors of some agencies to develop contingency plans if he needs to cut their budgets later in the fiscal year.

The tax-cut legislation that the governor signed last week also creates a 16-member Arkansas Tax Reform and Relief Legislative Task Force to recommend further tax cuts for lawmakers to consider starting in 2019. The creation of the task force helped placate lawmakers who also wanted to cut rates for those making more than $75,000.

This week, the governor signed a law that will exempt military retirement benefits from state income taxes and cut the excise tax on soft-drink syrup, starting with the 2018 tax year.

To offset the cuts, the law will increase the 1.5 percent state sales tax on candy and soft drinks to 6.5 percent, levy income taxes on unemployment compensation and impose a sales tax on certain digital products.

Meanwhile, Files said he plans to present his Senate Bill 140 to the House Revenue and Taxation Committee on Tuesday.

Amazon's announcement Friday "is part of the puzzle, but by no means is it the whole thing," he said.

SB140 is backed by Wal-Mart Stores and opposed by the Washington, D.C.-based Americans for Tax Reform.

The out-of-state companies affected by SB140 would include those that either have gross revenue exceeding $100,000 from sales of products and services delivered into Arkansas, or have sold products and services for delivery into Arkansas in at least 200 separate sales transactions, in either the previous calendar year or current calendar year, according to the state Department of Finance and Administration.

To enforce the collection requirements of SB140, the state may file a lawsuit in circuit court against any company the state believes meets the criteria of the bill, the finance department said.

Existing U.S. Supreme Court case law provides that an out-of-state or remote seller must have "nexus," meaning a physical presence in a state, to be required to collect that state's sales and use taxes on in-state purchases, the department said.

Americans for Tax Reform President Grover Norquist said in a recent letter to lawmakers that "requiring businesses to remit taxes to a state where they have no physical presence is simply unfair, as out-of-state employers and their employees will not use or benefit from any public service, program or project funded by Arkansas' sales tax.

"SB140 and other efforts by state and local tax collectors to reach beyond their borders present constitutional concerns as well," Norquist said.

Amazon's announcement Friday also comes three days after the House voted 54-24 to approve House Bill 1388 by Rep. Dan Douglas, R-Bentonville, to require out-of-state retailers that don't have a physical presence in Arkansas and don't collect Arkansas sales and use taxes to notify their Arkansas customers at the time of purchases that tax is due and that the state requires the filing of a sales- and use-tax return.

The bill also would require out-of-state retailers to notify their Arkansas customers by Jan. 31 of each year of the total amount of each customer's purchases, according to the finance department. By March 1 of each year, these retailers would be required to file with the finance department annual reports of sales to each customer, showing the total amount paid during the preceding calendar year.

The bill includes penalties for out-of-state retailers and facilitators that fail to comply with its provisions, the department said.

Douglas said Friday that he plans to present his bill to the Senate Revenue and Taxation Committee.

"Amazon is the gorilla in the closet and Amazon is now out of the closet," and online retailers need to pay sales taxes like local retailers do, Douglas said.

Norquist said in a letter dated Friday to senators that "HB 1388 and similar bills pending in other states are often touted as a way to 'level the playing field' between brick-and-mortar shops and online retailers.

"Unlike in-person purchases from brick-and-mortar stores, out-of-state purchases from online retailers face added charges for shipping and handling, which can add considerable costs to an online purchase," Norquist said.

But Jim Frank, owner of Ozark Outdoor Supply in Little Rock, said that all online retailers should pay sales taxes.

"It's a sore subject with me and it has been for a long time. It's one of those issues ... that I can't see how there could be two sides to the story because for one, it's not a new tax. Two, no matter where you buy your product, if you're a resident you're supposed to pay sales tax on it, but very few people do."

People don't know how and don't want to pay those taxes, he said.

"You're probably guilty. My wife's guilty," Frank said.

Bills pending in the Legislature should advance for the sake of fairness, he said.

"I hate the fact that everyone is using the word Amazon -- everybody knows that word and knows that name. It's not just Amazon. It's everybody," Frank said. "It's money we're due. I'm a tax collector here for all my customers. It's frustrating. The Internet's not new anymore. It doesn't need help anymore, like it maybe did 15 years ago or 20 years ago."

Ozark Outdoor Supply has been in business since 1971. Frank's family has owned the Kavanaugh Boulevard business since 1986.

Information for this article was contributed by Brian Fanney of the Arkansas Democrat-Gazette.

A Section on 02/11/2017