Arkansas Senate approves online sales tax bill

By ANDREW DeMILLO

LITTLE ROCK, Ark.

The Arkansas Senate voted Thursday to require many out-of-state online retailers to collect sales taxes the same way in-state stores do, a move that is pitting the world's largest retailer against online stores and anti-tax activists.

The bill, approved on a 26-7 vote, would require out-of-state online retailers to collect Arkansas sales taxes if their annual sales in the state exceed $10,000. The measure would apply to retailers that have online affiliates in Arkansas, who directly or indirectly refer customers for a commission or some other consideration.

Under current law, customers are required to pay state sales taxes on items they buy online but the burden is on them to report and pay the taxes to the state, Files said.

"This bill is not a tax increase," Files said.

State officials say the change would have a minimal financial benefit to the state, and said it would depend on the response of online retailers such as Amazon.com. When similar legislation was enacted in Rhode Island and North Carolina, Amazon ended its affiliate program so it could continue selling in the states. A spokesman for Amazon did not respond to a request for comment Thursday.

One of the biggest backers of the proposal is Bentonville based Wal-Mart Stores Inc., which said the legislation would level the playing field between retailers and online businesses.

"Retail businesses are already required to collect sales taxes for any online sales. But online-only retailers usually use legal loopholes to not collect sales taxes," spokesman Daniel Morales said. "That's not fair, not right and not good for business."

Opponents of the measure questioned how it would comply with a 1992 U.S. Supreme Court ruling that said states could not force retailers to collect taxes for them unless the retailers had a physical presence, or 'nexus,' within in the state. Files said the legislation would expand that 'nexus' by including stores with affiliate programs.

"How is it that we're going to pass a bill that's in direct opposition to the Supreme Court?" Sen. Jason Rapert, R-Bigelow, said before voting against the legislation.

Sen. Sue Madison, D-Fayetteville, said the change would remove a major burden for consumers who should be paying the tax on online sales anyway.

"This bill will make it easier for us as consumers to do the right thing," Madison said.

The proposed change faces heavy opposition from Americans for Tax Reform. Grover Norquist, president of the anti-tax group, told lawmakers in a letter dated Wednesday that the change would harm businesses more than level the playing field. In the letter, Norquist said as many as 1,800 online affiliates could lose business if Amazon and other retailers severed the contracts in response.

If no online retailers sever their ties with affiliates, the proposal would amount to a net tax increase, Norquist warned.

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Online:

S.B. 738: http://www.arkleg.state.ar.us/assembly/2011/2011R/Bills/SB738.pdf