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WASHINGTON -- U.S. Rep. Steve Womack says legislation will be introduced this year to make it easier for states to collect taxes on Internet sales that are owed by consumers but typically go unpaid.

The measure would create a level playing field for Arkansas merchants competing against out-of-state businesses that are able to sell products tax-free, Womack said.

Under current federal law, a state can only force a business to collect sales taxes it is owed if the business has some kind of connection to that state -- a physical store, office or warehouse within its borders, for example.

Because purchasers are failing to pay the taxes voluntarily and businesses can't be compelled to collect the money, state and local governments are missing out on billions of dollars in revenue. Owners of traditional retail stores, which are already required to collect the tax, say the current system gives an unfair advantage to their online competitors.

Many in Congress agree. The Marketplace Fairness Act of 2013, which would have required major online retailers to collect and remit sales taxes, passed the Senate 69-27 in May of that year, only to die in the House Judiciary Committee.

Womack was the House sponsor and was joined by 67 co-sponsors.

The measure had the support of many retailers, including Wal-Mart, Target and The legislation also was supported by the Arkansas Grocers and Retail Merchants Association. It's an issue important to the city of Little Rock, where the Board of Directors wants to meet with the state's two U.S. senators and 2nd District U.S. Rep. French Hill to discuss it.

Arkansas Gov. Asa Hutchinson also favors allowing requiring online retailers to collect the sales taxes, saying the increased revenue would enable the state to lower its income tax rates.

Debate over collecting

Opponents included eBay and Americans for Tax Reform, an organization that lobbies for what it calls "simpler, flatter, more visible, and lower" taxes.

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The latest version of the measure, known as the Remote Transactions Parity Act, was sponsored by U.S. Rep. Jason Chaffetz, R-Utah, and co-sponsored by Womack. It failed to pass either chamber during the last session of Congress.

Supporters are confident the legislation would pass if it's allowed to come up for a vote in both chambers.

J. Craig Shearman, vice president of government affairs for the National Retail Federation, says its members want Congress to act.

"The situation right now is absolutely not working, and the law absolutely needs to be changed," he said.

But Grover Norquist, president of Americans for Tax Reform, is urging lawmakers to keep the status quo.

Instead of seeking new ways to collect taxes, politicians should focus on "how to spend less money and how to reform government," he said.

Womack, who sponsored the House version of the bill, says the need for the legislation continues to grow as the amount of online commerce rises.

"In my strong opinion, we are doing significant damage to the retail community that forms the backbone of a lot of the income stream for Arkansas cities and counties and our state, and we are doing a lot of corresponding damage to a lot of our local governments," the Republican from Rogers said.

The legislation doesn't create a new tax, it merely fights tax evasion, Womack said.

Norquist disagrees.

"They want to change the law to get more money in the hands of the government," he said. "I think if you explain that to any citizen, they say, 'Oh, you mean a tax increase.'"

Forcing out-of-state businesses to cough up taxes, Norquist said, amounts to "taxation without representation."

The U.S. Supreme Court in 1992 ruled that out-of-state mail-order businesses could not be forced to collect taxes unless at least minimal ties existed between the company and the state.

Online sales soar

Online sales, which totaled $91.1 billion in 2005, reached $341.7 billion in 2015 and accounted for 7.3 percent of all sales, according to the U.S. Commerce Department.

The final 2016 figures won't be released until February. But e-commerce was up, year-to-year, by at least 15 percent in each of the first three quarters last year. Total sales, on the other hand, rose between 2.2 and 3.3 percent during those quarters.

Womack sees no evidence that this trend is going to end anytime soon.

"I'll tell you straight up, this situation is not going to get better. It's going to get worse,m and we're seeing signs of it getting worse," he said.

City and county officials are blaming sluggish sales-tax revenues on the shift to e-commerce.

"For quite some time we all, on a local level, have realized that this is only going to escalate each year, [with] more and more people purchasing online," said Little Rock Mayor Mark Stodola.

Fortunately, Arkansas has lawmakers in the U.S. House and Senate who have tried to solve the funding problem, he said, praising Womack for taking a leadership role.

"He's been a big champion," Stodola said. "Steve, having been a mayor, understands how critical it is to local government. I mean, we are largely dependent on our sales tax for our revenue stream."

Senate, House views

U.S. Sen. John Boozman, who voted for the Marketplace Fairness Act in 2013 when it passed the Senate, said the current system must be changed.

"It's a matter of fairness," the Republican from Rogers said.

An online seller that doesn't have to collect 9 percent or 9.5 percent in sales taxes starts off with an enormous head start, he said.

"If you start out 9.5 percent behind, it's very difficult to make that up," Boozman said. "If we're going to continue to have small businesses on Main Street, then we're going to have to do something."

U.S. Sen. Tom Cotton, who didn't join the Senate until 2015, agrees that the current system isn't working.

He wants an alternative that won't overwhelm small businesses.

"Some of the disagreement in Congress has been about how you frame that legislation so you don't open up small business in Arkansas to the tax laws of 49 other states and potentially hundreds of jurisdictions when you include counties and cities and special purpose jurisdictions like school districts and water boards," the Republican from Dardanelle said. "But we need to make sure that taxes due are paid, collected, administrated in a fair, efficient manner. That's what should happen and that's what I hope will happen."

U.S. Rep. Rick Crawford said he believes that Congress is likely to pass legislation addressing the issue during this session. There's disagreement, though, about whether the sales tax should reflect the location of the buyer or the seller. (Some online businesses, for example, are based in states such as Oregon that have no sales tax.)

Whatever gets passed, it won't be a tax increase, the Republican from Jonesboro said.

"This is not a new tax. It's a tax that, up to this point, has really just never been collected," he said.

U.S. Rep. Bruce Westerman said he has heard from people on both sides of the issue but is still making up his mind.

"I've not met any consumers that tell me they want to pay more taxes, but I've met a lot of city and county officials that would love to be collecting taxes," the Republican from Hot Springs said.

Hill, the Republican U.S. House member from Little Rock, said he will be looking to Chaffetz and Womack for guidance on the issue but is still studying it.

"I'm certainly empathetic to the fact that this is an existing tax that states are trying to collect, but we just don't have the formula that's meeting full acceptance in the House yet," he said.

Max Behlke, manager of state-federal relations for the National Conference of State Legislatures, said legislators will face some difficult choices if Congress fails to act.

"Every state that has a sales tax; this is a very big issue," he said.

If the sales-tax funds evaporate, then states will have to either cut programs or raise revenue, leaving them with two choices that are politically unpalatable, he said.

"After the recession, states cut so much out of their budgets that there really isn't a whole lot left there to cut, so coming to a resolution to this issue, it's more important now than it's ever been," he said.

A Section on 01/17/2017

Print Headline: Womack renews push so state taxes can tap Net sales


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Archived Comments

  • Whippersnapper
    January 17, 2017 at 8:49 a.m.

    So, using their logic, if I go purchase souvenirs in Oregon, I am a tax evader if I don't pay taxes on those products when I return to Arkansas. That's just plain silly.
    The fact is that this is a tax increase, because a tax that is unenforceable (as it currently is) is not a tax at all. Brick and mortar retailers benefit from the fire protection, police protection, and other community services in an area, which is why the transactions around them are taxed to pay for those local services. Online retailers do not benefit from those services, and taxing them to pay for the services is illogical.
    The only reason that the folks in Arkansas are pushing for this is because Walmart has given them their marching orders and told them that they need to do so. This is about protecting the special interests at the expense of the little guy. Does anybody think that the new tax collection systems will be perfectly in sync and that online purchases will be exempt from sales taxes during state sales tax holidays? I don't think so. It's not really about "fairness" so much as it is about competitive advantage for the brick and mortar folks (who already have the whole "You can come in and pick out exactly what you want and return it here no questions asked and do all of that instantaneously without any shipping delays" advantages).

  • applegg
    January 17, 2017 at 9:39 a.m.

    Walmart is everywhere, so they have to collect tax. I'm against this. I don't even believe the legislature can change it without a constitutional amendment, based on prior Supreme Court decision.

  • Foghorn
    January 17, 2017 at 9:48 a.m.

    If AR didn't have the 2nd highest sales tax in the country, there might be more popular support for this. Until the overall rate comes down, I would fight this tooth and nail. State and local govt is far too bloated Cut the fat first. Let the public sector layoffs begin!

  • LR1955
    January 17, 2017 at 9:57 a.m.

    Whippersnapper, the way I understand the article; let's say you use to online order items from Bass Pro or Cabellas before they had stores here, you paid no sales taxes on those items. Now that they have stores here, even if you order online, taxes should be charged as though you had gone to the store & bought in person.

  • Whippersnapper
    January 17, 2017 at 11:54 a.m.

    LR, you are describing the situation as it currently exists - Bass Pro currently has to collect if you buy from them. This new proposal is from Walmart and is about the Amazons of the world - they are trying to say that if you buy from a store that has no physical connection to the state whatsoever, they are required to collect taxes from you.

  • NoUserName
    January 17, 2017 at 12:21 p.m.

    Actually, Whip, I do believe if you buy something in a state with a lower sales tax, you ARE supposed to remit the difference to AR by law. Conversely, if you buy something in a higher taxed state, you can submit a request for a refund of the difference.

  • Whippersnapper
    January 17, 2017 at 1:04 p.m.

    NUN, if it is a tax to bring something in from another state, then it is (by definition) an import tariff and forbidden under the Constitution. They try to claim that it is a tax on the "use" of an item, but if I buy an item and never intend to "use" it, they want me to pay taxes anyway. It is unenforceable at best and unconstitutional at worst.

  • Vickie55
    January 17, 2017 at 1:08 p.m.

    NoUserName, the tax is collected at the point of sale. If you walk into a Bass Pro store in Memphis, you pay the Memphis sales tax because that was the point of sale. If you order an item online from Bass Pro and it is shipped to your doorstep, that becomes the point of sale so the tax is owed based on the Arkansas rate.

  • NoUserName
    January 17, 2017 at 1:16 p.m.

    Whip - I don't disagree.
    Vicky from dfa.guv-
    "Businesses and individuals should pay Use Tax if they:

    Purchased items outside Arkansas that would be taxable if purchased in Arkansas (including items from catalogues, TV advertisements, magazines, the Internet, etc.)
    Use, store, consume, or distribute these items in Arkansas, and
    Have not paid Arkansas sales tax or an equivalent amount to another state."
    It does say 'equivalent.'

  • carpenterretired
    January 17, 2017 at 8 p.m.

    A republican wanting to raise sale tax is logical as the lower the income of people the higher the percentage of their income (with sales tax) paid in taxes and more of the tax burden is transferred to lower income people.