Arkansas panel rejects online sales tax

House committee to try again after bill fails for second time

Rep. Dan Douglas of Bentonville (left) and Sen. Jake Files of Fort Smith, both Republicans, watch Thursday as the House Revenue and Taxation Committee votes down Files’ bill on sales taxes on online sales.
Rep. Dan Douglas of Bentonville (left) and Sen. Jake Files of Fort Smith, both Republicans, watch Thursday as the House Revenue and Taxation Committee votes down Files’ bill on sales taxes on online sales.

For the second time in 10 days, the House tax committee declined to recommend House approval of proposed legislation that would require out-of-state companies without a physical presence in Arkansas to collect and remit taxes on their sales to Arkansans.

In a voice vote Thursday, the House Revenue and Taxation Committee rejected Senate Bill 140 by Sen. Jake Files, R-Fort Smith. The committee then voted to approve a motion by Rep. Charlie Collins, R-Fayetteville, to expunge the vote to clear the way for another vote later.

"I think there is a lot of discussion that happened today and ... we need further discussion to understand how a lot of these pieces fit together and by expunging this vote we position ourselves to have that discussion," Collins said. House Democratic leader Michael John Gray of Augusta said he agreed with Collins.

Earlier, Gray fell one vote short of the 11 required in the 20-member committee for approval of his proposed amendment to the bill to earmark $25 million for certain programs. The money would come from the increase in revenue from SB140.

Gray proposed earmarking the money for rural fire and police protection grants, the state's pre-kindergarten program, after-school grants, the University of Arkansas at Pine Bluff and the Medicaid program to further reduce a waiting list for services for the developmentally disabled. A similar amendment by Gray fell one vote short of approval Feb. 14.

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All 10 Democrats voted for Gray's proposal Thursday, while six Republicans voted against it and four other Republicans didn't vote, according to the roll call. The House tax committee has 10 Republicans and 10 Democrats.

Files later said he's going to work with Republican Gov. Asa Hutchinson's office because "I think the governor's office can provide some leadership here and can help navigate this and hopefully bring some people together."

Files said Hutchinson probably could help resolve this impasse on the proposed legislation by making "some commitments on some of the issues that I think are important to the House Democrats and important to all of us ... and hopefully be able to identify some priorities within his budgets and some of his future budgets."

Gray said he plans to talk with Files and legislative leaders "to see if some of these needs can be addressed before we move forward with this bill.

"I don't think it is a matter of backing the governor into a corner and saying, 'Commit to this.' I think it is a matter of these are needs that need to be addressed," he said. He said he hasn't talked to the governor about SB140 since the House tax committee rejected it Feb. 14.

Hutchinson said in a written statement, "There's a philosophical difference as to whether any new revenues generated from online sales should be used to reduce the income tax rate, which I've stated is my preference, or for new spending.

"I look forward to visiting with committee members next week to discuss this legislation further," the governor said.

During the committee's meeting, both Rep. Dan Douglas, R-Bentonville, and Files urged the House tax committee to reject Gray's proposed amendment earmarking $25 million for spending.

"If we attach this amendment [and] pass this bill out of here with this amendment, the political reality is that it doesn't get off the House floor," Douglas said.

The House is made up of 76 Republicans and 24 Democrats.

But Rep. Reginald Murdock, D-Marianna, said, "It makes all the sense that we put a good amendment on a good bill to make it better."

The out-of-state companies affected by SB140 would include those without a physical presence in Arkansas that either have gross revenue exceeding $100,000 from sales and services delivered in Arkansas, or have sold products and services for delivery into Arkansas in at least 200 transactions, in either the previous or current calendar year, according to the state Department of Finance and Administration.

SB140 also would require out-of-state companies without a physical presence in Arkansas and that don't collect and remit sales and use taxes to report each year to the finance department the name and address of each Arkansan who purchased items from the companies and how much the company was paid.

The legislation is aimed at persuading these companies to collect sales taxes. Four days after the Senate approved the bill, Amazon announced Feb. 10 that it would begin collecting taxes on its sales to Arkansans on March 1 and remit the money to Arkansas government.

It's impossible for the finance department to project the impact on sales tax collections if the Legislature enacts SB140, said Paul Gehring, the state's assistant revenue commissioner for policy and legal. Files has estimated his bill could increase tax collections from about $32 million to $100 million a year.

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.

A Section on 02/24/2017

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