Hyden, Miron & Foster, PLLC Law Blog

Monday, July 23, 2018

Arkansas Faces Potential Online Sales Tax ‘Mess’

Do E-Commerce Sites Pay Sales Tax? 

In 1992, the United States Supreme Court decided in Quill Corporation v. North Dakota, that companies who had no physical locations within a state were not required to collect sales tax from its customers. This had been the standard until late June, when the U.S. Supreme Court heard the case, South Dakota v. Wayfair, Inc. Ultimately, the Court ruled that states may force online vendors to collect sales tax, even in states in which they have no physical presence.

Solid Arguments on Both Sides

One of the most argued beliefs is that this will even the playing field for brick and mortar stores, as they had been required to charge a sales tax, while their online competitors did not. This created an unfair advantage for e-commerce, and served as a deterrent for in-state businesses.

On the other side of the coin, the most widely argued belief for maintaining the old standard was that the idea of out-of-state taxation would lead to a whole array of problems that would arise surrounding jurisdiction.

Local Arkansas Retailers at a Disadvantage

This argument has been going on in the state of Arkansas for a long time. Last year a bill, SB 140, filed in the State Senate, focused on the idea of garnering sales tax from Internet vendors who are selling to Arkansas residents. However, this failed to pass. Rep. Dan

Douglas believes that this ruling may serve to revive the 2017 bill, as “it’s a different world” now from what it was in 1992. With sites like Amazon, Internet revenue has skyrocketed, and inadvertently taken aim at local stores. “…our local retailers who hire local people, own local property, pay property taxes to support our schools are at a 10 percent disadvantage, basically,” argued Douglas. However, he does not believe that the Supreme Court decision will change anything for Arkansans unless the State Legislature agreed to create a new bill; one, which he said that he would support.

Do Other States Even Have the Right to Charge These Taxes?

Rep. Stephen Meeks looks at the issue as one of authoritative power. He sees more of the jurisdictional issues than monetary benefits. “It becomes a jurisdictional question of whether that state has any authority to collect the state sales tax from another state.” He instead looks at it as a “federal issue” and says that he “believe[s] it needs to be resolved on the federal level.”

Another issue, Meeks argues, is that trying to force companies in other states to pay a sales tax may ultimately end up in a bunch of lawsuits, which would serve as a drain on state resources.

Only Time Will Tell

Although both sides make sound arguments for pushing sales tax upon online businesses, it is difficult for either to argue that with the way our world is constantly changing, there will come a time when all states will have to look at commerce from a different angle. Internet sales seem to be our present and our future.


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