LITTLE ROCK — A bill to force large online sellers to collect sales taxes on purchases in Arkansas failed to clear a House committee Tuesday, days after Amazon said it would begin collecting sales taxes in the state.
Senate Bill 140 by Sen. Jake Files, R-Fort Smith, received six votes in support and two votes against, falling short of the 11 votes needed to advance out of the 20-member House Revenue and Taxation Committee. Nine other members, eight of them Democrats, were present but did not vote.
The bill passed in the Senate in a 23-9 vote last week.
Tuesday’s committee vote came after the panel adopted an amendment offered by Rep. Dan Douglas, R-Bentonville, and rejected one offered by House Minority Leader Michael John Gray, D-Augusta.
Douglas’ amendment modified the bill to require that an out-of-state seller with no physical presence in Arkansas that sells more than $100,000 worth of products or makes at least 200 transactions in Arkansas in a calendar year either begin collecting sales taxes on purchases in the state or notify purchasers in Arkansas that they are required under existing state law to pay a consumer use tax on Internet purchases.
The seller also would be required to report Arkansans’ purchases to the state for tax collection purposes.
Douglas has a separate bill on the topic that has cleared the House but has not yet been considered in the Senate Revenue and Taxation Committee.
Douglas’ amendment also added language that would direct a legislative task force on tax reform to make recommendations on using Internet sales tax revenue to reduce income tax rates or fund state programs.
Gray’s rejected amendment proposed adding language to the bill to direct revenue from Internet sales taxes to rural fire and police departments, home- and community-based services for the developmentally disabled, early childhood education and after-school programs.
Nine Democrats and one Republican voted for Gray’s amendment, but it needed 11 votes for adoption.
Retailers who testified in support of SB 140 Tuesday said they want to be on a level playing field with Internet sellers that do not have to collect sales taxes. They said a law on the books since the 1940s — though little followed — requires Arkansans to pay a consumer use tax on purchases from out-of-state sellers, so the bill would not create a new tax.
Representatives of anti-tax groups who testified against SB 140 questioned whether it is constitutional. The U.S. Supreme Court ruled in 1992 that a state cannot require a business to collect state sales taxes if the business does not have a physical presence in the state.
Files told the committee his bill is modeled after a North Dakota law that allows the state to require a business with no presence in the state to collect sales taxes if the business does a large number of transactions in the state and therefore has an “economic nexus” there.
Amazon said Friday it will begin collecting sales taxes on purchases in Arkansas in March. Files said he did not believe Amazon would have made that decision if his bill were unconstitutional.
Files and Douglas have both said Amazon’s decision did not eliminate the need for their legislation because other online sellers are not collecting sales taxes from Arkansas customers.
After his bill failed in the committee, Files told reporters he will talk to the members to see how the measure could be modified to meet their approval. He also expressed frustration with the members who chose not to vote.
“I think it’s important that we come down here and we hear debate and then we take a position, and for them not to take a position was disheartening and I think it doesn’t do service to the process either,” he said.
Gray said the Democratic members discussed their plans before the meeting. He said they do not necessarily oppose what Files wants to do.
“We just think the bill could be fleshed out with a little more concentration on how to designate that revenue,” he said.