Arkansas state government would receive $35.4 million more a year in tax revenue if out-of-state retailers are required to collect and remit taxes on their online sales to Arkansans, according to an estimate that a state official gave legislators Friday.
And local governments in Arkansas could collect $8.1 million more a year in tax revenue if the state imposed such a requirement, estimated John Shelnutt, the state's chief economic forecaster.
Paul Gehring, an assistant revenue commissioner for the state, testified about Shelnutt's estimates before the Legislature's Tax Reform and Relief Legislative Task Force near the end of its four-hour meeting Friday.
In a 5-4 ruling on June 21, the U.S. Supreme Court overturned a 1992 court precedent that barred states from requiring businesses that have no physical presence in those states to collect taxes on sales to their residents. That ruling upheld a South Dakota law requiring certain out-of-state retailers, including those that operate remotely online, to collect sales taxes.
At that time, Republican Gov. Asa Hutchinson said he would consult with state Department of Finance and Administration officials and members of the General Assembly to determine what action, if any, needs to be taken here.
A task force co-chairman, Sen. Jim Hendren, R-Sulphur Springs, told fellow members Friday, "This is something that the task force will have to address as a recommendation," on whether to use online sales tax revenue to help cut other taxes.
"I can assure you that other states are looking at this as we speak," said Hendren, a nephew of Hutchinson.
Gehring said Arkansas has participated in the streamlined sales and use tax agreement for more than a decade, and has collected more than $100 million in sales and use tax revenue over that period from more than 3,000 registered retailers and sellers.
The agreement provides states with a way to get their taxes collected on transactions made by their residents through the Internet and other sellers outside the state, such as sales through catalogs.
There are others that have voluntarily chosen to register with Arkansas to collect sales and use taxes, he said. Since the U.S. Supreme Court ruling, more retailers have registered with the state.
Shelnutt estimated that the state could collect $24.49 million more a year in state general revenue and $10.88 million more in state special revenue if out-of-state retailers with no physical presence in Arkansas are required to collect and remit sales and use taxes.
The state's revenue commissioner, Walter Anger, gave Shelnutt's estimate in a three-page letter to the task force's co-chairmen, Rep. Lane Jean, R-Magnolia, and Hendren.
Gehring said Shelnutt's estimates of increased tax collections are based on out-of-state retailers that sell more than $100,000 a year to Arkansans or have at least 200 transactions to Arkansans within one year, which is the threshold for the South Dakota law.
During the 2017 regular session, similar legislation sponsored by then-Sen. Jake Files, R-Fort Smith, failed to clear the House of Representatives after clearing the Senate. After the Senate approved the bill, Amazon announced in February of 2017 that it would begin collecting and remitting taxes to Arkansas based on its sales to Arkansans.
Gehring said Shelnutt's estimates are fluid.
"We have a number of retailers who have already signed up in the past five weeks since [the U.S. Supreme Court ruling]," Gehring said. "We won't have an actual data about those sales in the state until they begin to actually file the reports and some of those won't be due until Aug. 20.
"There may be some retailers that are considering registering with the state of Arkansas. They're just figuring out the best way to do it. There may be some retailers that are going to do a wait-and-see approach to see if Arkansas puts in a new South Dakota [type] law in the 2019 session and then sets an effective date for that law," Gehring said.
"Then, there may be some retailers that ... don't want to collect Arkansas tax, so we are just not going to do business anymore and we aren't going to sell to those customers," he said. "Certainly, I would think that that number would be small. We are living in an economy now that is increasingly digital."
Anger's letter to Jean and Hendren included other estimates besides Shelnutt's regarding how much additional revenue state and local governments could receive if the state required the out-of-state retailers to collect and remit sales and use taxes.
Based on a federal General Accountability Office study released in November, the state could collect between $31.4 million and $71.3 million a year more under that scenario, Anger said. According to that study, local governments could collect between $7.2 million and $16.4 million more a year, Anger said.
Under a 2017 state law, the Legislature's tax overhaul task force is required to report on its recommendations to the Legislature and governor by Sept. 1. The task force was created to placate lawmakers who favor larger income tax cuts, particularly for Arkansans who have more than $75,000 a year in taxable income.
In the 2015 and 2017 regular sessions, the Legislature enacted Hutchinson's plans to cut individual income tax rates for Arkansans with taxable incomes up to $75,000 a year.
The state has projected that those tax cuts will collectively reduce state tax revenue by $150 million a year.
In February, the governor said he wants the 2019 Legislature to enact his plan to cut the state's top individual income tax rate from 6.9 percent to 6 percent. He has projected that his plan would reduce state tax revenue by about $180 million a year.
Hendren said Friday that the task force will hear Aug. 6 from its consultant, Regional Economic Models Inc., on its evaluation of four tax cut options.
On Aug. 7, the task force will review proposals to repeal some sales tax exemptions and change some excise taxes, including raising the state's cigarette taxes, in order to generate revenue to pay for cutting other taxes.
During the task force's Aug. 22-23 meeting, the Bureau of Legislative Research staff will present a draft final report based on decisions from the task force's Aug. 6-7 meetings, "so we can have it ready to submit by September," Hendren told the task force.
A Section on 07/28/2018