Panel approves Internet tax bill

Carwash provision amended

 Sen. Bart Hester, R-Cave Springs, is shown in this photo.
Sen. Bart Hester, R-Cave Springs, is shown in this photo.

The House Revenue and Taxation Committee on Tuesday advanced a bill that would make several tax code changes, including requiring out-of-state online sellers to collect sales and use taxes from in-state purchasers.

In a voice vote with one dissenting vote, the 20-member tax committee recommended House approval of an amended version of Senate Bill 576 by Sen. Bart Hester, R-Cave Springs.

SB576 also would phase in a reduction in the top corporate income tax rate from 6.5 percent to 5.9 percent; phase in an extension of the five-year carry-forward period for businesses' net operating losses to 10 years; and provide for a single-sales factor for the apportionment formula used by corporations for income tax filings. It also would change taxes that apply to carwashes.

Last Thursday, the committee declined to recommend the amended bill. The "sticking point" then was the bill's changes in the taxation of carwashes, said the bill's House sponsor, Rep. Dan Douglas, R-Bentonville.

Hester on Tuesday defended the changes in the taxation of carwashes. Those changes drew support from an official of one carwash company and opposition from officials from two other carwash companies.

Officials from the Arkansas State Chamber of Commerce, Arkansas Municipal League and Association of Arkansas Counties testified for the bill, while an official representing the Conduit for Action group opposed the measure's taxation of Internet sales.

[RELATED: Complete Democrat-Gazette coverage of the Arkansas Legislature]

"This is the No. 1 priority for this session for the members of our organization, primarily manufacturers, utilities, banks, retailers, business owners, business managers," said Randy Zook, chief executive officer and president of the chamber. "We are not competitive with our business tax climate. We still rank 46th of the 50 states with our business tax climate."

The bill's corporate income tax changes "will move us in the right direction and, if we stand still, we will be losing ground because other states are moving at the same time we are considering this," Zook said.

The Senate-approved version of SB576 also would provide a carwash-related sales-tax exemption; levy a new annual fee on some carwash operators; and add a monthly water-use fee on operators of carwash tunnels. But the bill was amended in the House to address concerns raised by officials of Zips Car Wash, who warned it would cost the company about $440,000 a year more in state taxes.

The amended bill would levy the monthly water usage fees on operators of tunnel carwashes and automatic carwashes, according to the state Department of Finance and Administration.

The fees would be calculated on eight-tenths of the total aggregate number of gallons of water used during the month and levied at four-tenths of a cent per gallon on tunnel carwashes and at two-tenths of a cent on automatic carwashes. The amended bill also removed the levy of annual fees on automatic carwashes and on self-service bays.

Hester told the House committee that some carwashes are not taxed at all in Arkansas "and some are taxed at the full 6.5 percent [corporate] rate, so when I started looking into this, I thought how could we be as fair as possible to everybody, so we came up with this water tax, which is not a great talking point.

"But the reality is we had to tax everybody at 6.5 percent to eliminate the exemption or focus on some type of water tax that would tax everybody ... at a 3 percent or 4 percent rate, which we brought down even a bit more with this amendment," he said. "Like most of you in here, I am not excited about taxing people more. But the overall goal was to lower the corporate and personal income tax rates."

Jascha Tribett, owner of Captains Car Wash in Conway and Mayflower, said the various carwashes "are different business models," which makes it difficult to come up with a single tax.

"Right now, the way it is worded, it is not fair at all. It is very detrimental to the express tunnels, and it is really detrimental to the ... gas station carwashes and it is very detrimental to the self-serve automatic car washes.," he said.

Tribett said he would like to see the car wash provisions removed from the bill and allow lawmakers to revisit the issue.

Sam Neely, chief financial officer for Zips Car Wash, said Douglas and Hester amended the bill "to lower some of those bills and reduce the severity of this and I believe it removes some uncertainty in the law and how it is applied and gives us an opportunity to perform an interim study throughout the course of the remainder of this year.

"If we need to come back and move numbers one way or the other, we'll have that opportunity and trust that we can work with our legislators to get it done, so we are in support of the bill due to the compromises we have reached," he said.

Brad Vaden, chief executive officer for Team Clean Car Wash, questioned, "Why is this bill being jeopardized by a very immaterial part of the bill, at least relatively speaking? ...

"Let's carve the car wash bill out, go back and let everybody be involved," he said. "Just don't pass an inherently flawed law that comes out of the gate based on water consumption, which is not a good way to tax the car wash industry."

Hester said car wash tax provisions are in the bill because they had fiscal impact. They are projected to reduce state revenue by $3.3 million a year, according to the finance department.

Under SB576, out-of-state remote sellers without a physical presence in the state would be required to collect and remit sales taxes on annual sales of more than $100,000 from products and services delivered into Arkansas, the finance department said of the bill. Alternatively, such sellers would be required to collect sales taxes if they sold products and services for delivery in Arkansas on at least 200 separate transactions.

They would begin collecting the tax July 1, the finance department said. The sales thresholds would apply to the previous calendar year or the current year.

SB576 also would require "marketplace facilitators," such as Amazon or eBay, that sell or facilitate sales for their participating sellers, to collect and remit applicable state sales taxes on all purchases through the marketplace, according to the finance department.

The finance department projects that these requirements would raise $32.4 million in revenue in fiscal 2020, over 11 months, and $35.3 million in fiscal 2021, based on a full 12 months.

The finance departments also forecasts the bill would raise $10.8 million for cities and counties in fiscal 2020 and $11.8 million in fiscal 2021 because of local sales taxes.

The bill also would change the state's sales and tourism tax provisions to provide that "accommodations intermediaries" would be required to collect and remit Arkansas taxes when furnishing an accommodation in the state, according to the finance department. That's projected to raise $3.1 million in revenue in fiscal 2020 and then $4.2 million in fiscal 2021, according to the department.

SB576's corporate income tax cuts would reduce revenue by $9.8 million in fiscal 2021, $29.5 million in fiscal 2022 and $39.3 million in fiscal 2023 and beyond, according to the finance department.

The bill would extend the net operating loss carry-forward period from five to eight years for losses occurring in the tax year starting Jan. 1, 2020, and to 10 years for losses in 2021, according to the finance department. That is projected to reduce state revenue in fiscal 2026 by $7.8 million and eventually $70 million in fiscal 2032, according to the finance department.

Changing the apportionment formula for multistate corporations from three factors to a single-sales factor would increase revenue by $357,000 in fiscal 2021 and $714,270 in fiscal 2022 and beyond, according to the finance department.

Metro on 04/03/2019

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