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Arkansas considers use tax notification requirement, online sales tax

  • Feb 10, 2017 | Gail Cole

 Arkansas lawmakers pursuing several routes to capture more remote sales tax revenue.

Update 5.24.2017: House Bill 1388 failed on May 1.

Update 2.15.2017: Senate Bill 140 has been rejected by the House Committee on Revenue and Taxation in a 6-2 vote. House Bill 1388 is now under consideration in the Senate Revenue and Taxation Committee.

A bill seeking to impose a use tax notification requirement on out-of-state sellers that don’t collect and remit sales and use tax in Arkansas was approved by a large margin in the Arkansas House on February 7, 2017. Another bill that would institute economic nexus and provide for the collection of sales and use tax by certain out-of-state sellers passed in the Senate.

Use tax notification requirement

House Bill 1388 would require noncollecting out-of-state sellers and facilitators to inform Arkansas purchasers (at the time of purchase) that sales or use tax is due on certain purchases, and that Arkansas requires the purchaser to file a sales or use tax return. Sellers that fail to provide such notice would be subject to a penalty of $5.00 for each such failure, unless reasonable cause can be shown.

Noncollecting sellers would also be required to inform Arkansas purchasers by January 31 of each year “the total amount paid by the purchaser for Arkansas purchases made from the seller in the previous calendar year.”

Additionally, noncollecting out-of-state sellers would be required to file an annual report of sales to each Arkansas purchaser with the Director of the Arkansas Department of Finance and Administration by March 1 of each year. Failure to do so could lead to a penalty of $10.00 per purchaser.

The proposed use tax notification requirements are explained in the text of the bill. If enacted as written, it would take effect on January 1, 2018.

Representative Dan Douglas (R), who sponsored the bill, was unequivocal in his support of it. When fellow Republican Rep. Johnny Rye described it as a tax increase, saying, “I mean, it’s something [taxpayers] haven’t paid before,” Douglas said, “It is something they have evaded paying before. …  It is due and owe-able and payable. We have just been enabling people not to follow the law” (Arkansas Times).

Online sales tax

Senate Bill 140 echoes economic nexus legislation enacted in South Dakota last year (see Revenge of the Dakotas: A Challenge to Quill). It states: “The inability to effectively collect any Arkansas sales or use tax from remote sellers who deliver tangible personal property, any other property subject to Arkansas sales and use tax, or services directly into the state is seriously eroding the sales tax base of this state, causing revenue losses and imminent harm to the state through the loss of critical funding for state and local services.”

The bill imposes a tax collection obligation on remote sellers meeting either of the following criteria in the previous or current calendar year:

  • Gross revenue from sales of taxable goods or services into Arkansas exceeds $100,000
  • The seller made at least 200 separate sales transactions into Arkansas of taxable goods or services

Fulfilling this obligation should not be a hardship for out-of-state sellers, the measure explains, because “advanced computing and software options have made it neither difficult nor burdensome for remote sellers to collect and remit sales and use taxes associated with sales in this state.”

In addition to imposing a tax collection responsibility on certain remote retailers, the legislation calls for “expeditious review” of Quill Corp. v. North Dakota, the 1992 ruling by the Supreme Court of the United States that upheld the physical presence requirement, thereby preventing states from imposing a tax obligation on remote sellers lacking a substantial (physical) connection with the state. This review is necessary and appropriate, the bill claims, because “although it may be reasonable notwithstanding this act for remote sellers to continue to refuse to collect the sales and use tax in light of existing federal constitutional doctrine, this refusal causes imminent harm to this state.”

However, SB 140 includes language that would stay the obligations created by it “until the constitutionality of this law has been clearly established.” In the meantime, it would “apply Arkansas’s sales and use tax obligations to the greatest extent possible under federal and state constitutional doctrines,” and “clarify that Arkansas law permits the state to immediately argue in any litigation that the constitutional doctrine should be changed to permit the collection obligations of this act.”

Additional details are available in the text of the measure. Learn more about economic nexus here.

Will this bill inspire Amazon to collect Arkansas tax?

Aside from the five states with no sales tax, Arkansas is one of only five states where Amazon does not now (or will not soon) collect and remit tax. In recent months, the ecommerce behemoth has agreed to voluntarily tax transactions in more than 10 states, including South Dakota.

Tax automation software can’t predict which states will expand the definition of nexus or if the Supreme Court will reconsider Quill. It can facilitate sales and use tax compliance for businesses of all sizes in all states. Learn more.

photo credit: alles-schlumpf via photopin cc

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.