Arkansas tax reform task force recommends South Dakota–style economic nexus

The Arkansas Tax Reform and Relief Legislative Task Force was established in 2017 to identify areas of potential tax reform within the state. In its final report, released mid-August, the Task Force recommended requiring remote sellers doing a certain amount of business in the state to collect and remit Arkansas sales tax.

Until recently, states lacked the authority to impose a sales tax collection obligation on businesses with no physical presence in the state. That changed June 21, 2018, when the United States Supreme Court found the physical presence rule to be “unsound and incorrect” and overruled it in South Dakota v. Wayfair, Inc.

Learn more about South Dakota v. Wayfair, Inc. and its impact on retailers.

The Wayfair ruling centered on South Dakota’s economic nexus law, which bases a tax collection obligation on economic activity rather than physical presence. It requires sellers with no physical presence in the state to comply with South Dakota sales and use tax laws if, in the current or previous calendar year, they have more than $100,000 in gross sales into South Dakota, or 200 or more separate transactions into the state.

Arkansas should do the same, according to the Task Force. It recommends requiring sellers with no physical presence in Arkansas to collect and remit Arkansas sales and use taxes if they have more than $100,000 in sales or at least 200 separate sales transactions in the state. As with South Dakota’s law, retroactive enforcement would be prohibited.

The Task Force predicts requiring remote sellers to collect and remit sales tax would increase general revenue in the state by close to $25 million. It proposes offsetting any revenue increases with other tax reductions.

Local support for remote sales tax

The Board of Directors of the City of Little Rock supports taxing remote sales. In early August, it passed a resolution encouraging Governor Asa Hutchinson to call a special session “as quickly as possible to approve any necessary legislation, or amendments, which would permit the State of Arkansas, its counties, and its municipalities, to require out-of-state vendors to collect and remit sales or compensating use taxes on internet or other out-of-state sales.”

To date, the governor has refrained from calling a special session. However, he has voiced support for taxing remote sales: “The [Wayfair] decision is based upon fairness in the marketplace and is good news for the homegrown businesses in Arkansas that have to compete with the online businesses that operate globally and sell locally. I expect states to move quickly in light of the Court’s decision and I will be consulting with the Department of Finance and Administration and members of the General Assembly to determine what, if any, action needs to be taken in Arkansas.”

The legislature considered remote sales tax legislation in early 2017 but did not enact it.

Arkansas tax authority encourages remote sellers to collect and remit

Following the Supreme Court decision in South Dakota v. Wayfair, Inc., the Arkansas Department of Finance and Administration published guidance and FAQs for remote sellers. It explains the gist of the Wayfair ruling and explains the ways remote sellers can register to do business in the state: through the Department of Finance and Administration or the Streamlined Sales and Use Tax Agreement (SSUTA). Arkansas is a full member of the SSUTA, meaning it’s taken steps to simplify sales and use tax compliance for remote sellers.

Not sure where you have an obligation to collect sales and use tax? Avalara’s state-by-state guide to sales tax economic nexus rules can help.

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