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Arkansas congressman renews push so state taxes can tap online sales

by Frank E. Lockwood | January 17, 2017 at 5:45 a.m.

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 Amazon.com. 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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