A bill that would change several tax laws -- including requiring out-of-state online sellers to collect sales and use taxes from in-state purchasers and changing the state's corporate income-tax code -- cleared the Arkansas Senate on Monday.
The Senate voted 27-3 to send Senate Bill 576 by Sen. Bart Hester, R-Cave Springs, to the House for further consideration.
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.
Gov. Asa Hutchinson said that "in reference to SB 576, I do support the tax reform bill because it creates more fairness in our tax system, and it makes our corporate tax structure more competitive."
"I will be watching the progress of this bill to see whether there are any changes as it goes through the General Assembly," the Republican governor said in a written statement.
The legislation 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.
The Senate's approval of the legislation came after Hester answered three senators' questions about the bill's taxation of carwashes. Hester said the taxes on carwashes "will be levelized" under an amendment in the House.
Hester agreed to the amendment after Zips Car Wash Chief Financial Officer Sam Neely testified last week that the bill would raise the firm's state taxes by about $440,000 a year.
Zips Car Wash CEO Brett Overman took out full-page ads in the Arkansas Democrat-Gazette to drive that point home.
In an interview, Hester said, "I felt like we could have stayed the course and probably eked it out. But it was better off, I felt, to find some common ground and end up eliminating an exemption.
"I think Zips is happy with this, unfortunately," he said.
Overman said in a text message to this newspaper that the "amendment language we have seen is a fair compromise under the circumstances, so we will support it."
"We will monitor the numbers closely and inform the Legislature during their fiscal session in 2020 if any changes are warranted," Overman said.
Afterward, House Revenue and Taxation Committee Chairman Joe Jett, R-Success, said the committee will consider the legislation Thursday.
No senator raised any questions about the bill's provisions on Internet retailers' sales taxes. Two years ago, similar Senate-approved legislation failed to clear the House of Representatives.
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 state Department of Finance and Administration said in a legislative impact statement on 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 under the bill, the finance department said. The sales thresholds would apply to the previous calendar year or the current year.
These thresholds are identical to those imposed by South Dakota that were upheld by the U.S. Supreme Court in South Dakota v. Wayfair in 2018, according to the finance department. As of January of this year, 32 of the 45 states that levy sales taxes have implemented or adopted state laws on Internet sales.
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.
SB576 also would reduce the state's top corporate income-tax rate of 6.5 percent to 6.2 percent starting Jan. 1, 2021, and further to 5.9 percent in 2022. That would reduce state 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 2020 tax year 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, $23 million in fiscal 2027, $37.4 million in fiscal 2028 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-sale factor would reduce state revenue by $357,000 in fiscal 2021 and $714,270 in fiscal 2022 and beyond, according to the finance department.
SB576 also would change existing law to provide that the sales tax does not apply to sales to a carwash operator or on sales by a carwash, including ancillary services. It would levy monthly fees based on the amount of water consumed by "car wash tunnel" operators. It would levy annual fees on "automatic car washes" and "self-service car washes," according to the finance department.
Carwash tunnel operators would be assessed water usage fees based on multiplying the total number of gallons used the previous month by 90 percent and then multiplying that by less than a penny -- 0.75 of a cent -- to determine the monthly fee due, the finance department said.
Carwash operators with only "self-service bays" would be charged an annual $100 fee per bay, and those with only "automatic car washes" would be charged a $500 fee per year for each automatic carwash.
These changes for carwashes are projected to reduce state revenue by $800,000 to $1.2 million a year, including a $2.1 million loss in sales-tax revenue from carwashes, a $1.1 million gain from carwash tunnels and a $423,360 gain from annual fees on automatic carwashes and self-service bays, according to the finance department.
Afterward, Hester said the amendment that he has agreed to would change the fees on carwash tunnel operators, so it's based on 80 percent on the water usage rather than 90 percent of the water usage, have automatic carwashes pay a fee based on water usage rather than a flat fee, and base the fee on 0.4 of a cent rather than 0.75 of a cent.
Hester told senators earlier that some carwashes pay sales taxes "and some don't, so we are trying to level out the playing field a little bit."
"If there is human interaction like if they power-wash the tires before they go in, it is taxed, and, if they don't, there is not an interaction, then it's not taxed," under current law, he said. He said he consulted people in the carwashing industry on the legislation.
Sen. Kim Hammer, R-Benton, talks about a bill Monday in the Senate chamber.
A Section on 03/26/2019
Print Headline: Online sales-tax bill sails in Senate 27-3