Friday, February 10, 2017

Amazon set to begin collecting sales tax on Arkansas purchases in March

Posted By on Fri, Feb 10, 2017 at 1:00 PM

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AP reports that Amazon has announced it will begin collecting the Arkansas sales tax on purchases in Arkansas March 1.

The news follows receptive votes in both House and Senate to measures aimed at enforcing collections of the sales tax on Internet purchases in Arkansas.

This is NOT a new tax. In theory, a sales tax (or technically a "use" tax) is owed on all purchases made by Arkansans in or out of state. But the seller is not required to collect the tax if it does not have a physical operation in the state. Amazon operates no facilities in Arkansas.

Legislation to require Amazon and other large Internet sellers to notify customers of taxes owed on purchases prompted Amazon to begin collecting the tax on Louisiana beginning this year. And similar legislation has advanced in the Arkansas legislature.

The change could amount to millions for Arkansas. That raises anew the question of whether the money will be allowed to accumulate for starved services or to go to further cut taxes for higher income people.

I presume this means a windfall not just for the state but also for cities and counties. If the practice follows those of other merchants, the tax will be computed based on prevailing sales tax rates in the place of residency of the purchaser. More details to come on this.

Amazon did $134 billion in sales in 2016. Arkansas's 3 million people amount to slightly less than 1 percent of U.S. population. A rough estimate of taxes on Arkansas sales thus would be 6.5 percent of 1 percent of $134 billion, or about $78 million.

UPDATE: Rep. Andy Davis this week filed a bill that would provide an income tax cut equal to any amount raised by internet sales tax collection in excess of $70 million. He'd apply that amount toward a reduction in the 4.5 percent tax rate applied to the first $12,599 in taxable income for all taxpayers.

UPDATE II: from Gov. Asa Hutchinson:

“The announcement from Amazon to start the sales tax collection for Arkansas in March is laudable and good news for the state. Arkansas will join the other 38 states in which Amazon is collecting and remitting sales tax. This step by Amazon has been voluntary and reflects the new landscape in which retailers recognize the practicality and fairness of sales tax being treated equally between online sales and in person store sales. This decision also shifts the responsibility of sales tax payment from the customer to the retailer at the time of checkout—providing further clarity and efficiency to the current and often misunderstood Arkansas law.

“As everyone knows, lowering our state’s income tax rate has been a priority of mine from day one. This strengthened revenue stream will allow us to continue to make progress in cutting the income tax rate, making Arkansas more competitive with our surrounding states, and putting money back into the pockets of hardworking Arkansans.”

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