Arkansas Tax: State Expects Slow Action On Web Tax

By Rob Moritz, 30 May 2010, LITTLE ROCK -- Another push in Congress to end the era of tax-free Internet sales may be coming, but state lawmakers are not optimistic legislation is going anywhere soon.

For the past decade, Arkansas and other states have been working to streamline their tax codes in a joint effort to demonstrate to Congress there is national support for taxing online purchases.

 Georgia will be the 24th state to become a full member of the Streamline Sales Tax Agreement when legislation passed by its legislature goes into effect Jan. 1.

Arkansas became a full member of the agreement in January 2008.

Full membership requires implementing laws necessary to begin collecting sales taxes on Internet purchases.

At stake is about $100 million in annual tax revenue for Arkansas and $33.7 billion for states nationwide, according to a University of Tennessee study.

Mary Cameron, an attorney with the state Bureau of Legislative Research, told a joint meeting of the Senate and House tax committees recently that Internet and catalogue sales continue to grow in popularity - up 14.3 percent during the first quarter of the current fiscal year - compared to regular retail sales, not including groceries, which grew just 3.42 percent.

"The numbers are going up," Cameron said. "It's getting more and more common."

Cameron said U.S. Sen. Michael Enzi, R-Wyo., is planning a third run of legislation to mandate sales tax collections on Internet and catalogue purchases. Twice before, Enzi has proposed similar legislation that failed to get out of committee.

The latest version would allow states that are full members of the Streamline Sales Tax Agreement to begin collecting taxes on Internet sales from companies with more than $5 million in nationwide sales annually.

Enzi spokeswoman Elly Pickett said is gathering co-sponsors and will file the measure when he feels he has enough support.

Last week, Arkansas' representatives on the Streamlined Sales Tax Governing Board said they would like to see the tax enacted but that quick action by Congress is unlikely, particularly with the nation's economy struggling.

"As the legislator of a rural district, putting my Main Streets on the same playing field as the big guys on the Internet, I think, makes sense," said Sen. Larry Teague, D-Nashville.

But he added, "I don't know, in this economy, if it's the right thing to do. Anything that hurts businesses right now is probably not the right thing to do."

Rep. Buddy Lovell, D-Marked Tree, said a streamlined tax on Internet sales would bolster his small town and the state as a whole. But he said he doubts Congress will move forward until more than half of the states are on board.

"I think there will certainly have to be in the 30s before Congress will take a serious look at it," Lovell said. "Let's face it, the Internet sales people and the big outdoor sales catalogues will certainly oppose it."

Whether Arkansas' U.S. senators would support Enzi's legislation is up in the air. U.S. Sen. Blanche Lincoln, D-Ark., and the two candidates for her Senate seat all said they see merit in the idea, neither would commit to the measure before seeing the details.

Lincoln "understands that sales and use taxes provide critical revenue to Arkansas, particularly in those tough economic times," spokeswoman Marni Goldberg said.

"This an issue that has multiple consequences for multiple players, including business owners, online sellers, consumers, state and local governments," said Garry Hoffmann, spokesman for Lt. Gov. Bill Halter, Lincoln's opponent in the June 8 Democratic runoff.

"As a U.S. senator, Bill Halter will look at the research and the facts and make a decision he feels is best for the state of Arkansas," Hoffmann said.

Patrick Creamer, spokesman for U.S. Sen. John Boozman, R-Rogers, the Republican nominee for Lincoln's seat, said the congressman "will listen to the concerns of Arkansans and our state's business community before voting on ... any legislation dealing with online sales taxes."

U.S. Sen. Mark Pryor's office did not immediately return a call seeking comment.

The streamline sales tax project started in response to a U.S. Supreme Court ruling that prohibited states from forcing an out-of-state business to collect and remit state sales taxes unless the company had a physical presence in the state.

Some companies do so voluntarily. Cameron said state and local governments in Arkansas received about $7 million in taxes on Internet sales from about 1,200 companies last year.

In 2007, the Legislature approved changes to the state tax code to require sales taxes to be collected at the point of delivery. The move was intended to position the state to collect sales taxes on Arkansans' online purchases.