Remote seller sales tax bill introduced in Arkansas

Update 4.12.2019: Arkansas has adopted economic nexus for remote sellers and marketplace facilitators. Effective July 1, 2019, a remote seller or marketplace facilitator must register to collect and remit Arkansas sales tax if in the previous or current calendar year it had at least 200 transactions or more than $100,000 in aggregate sales of tangible personal property, taxable services, digital codes, or specified digital products subject to Arkansas sales or use tax within or delivered into Arkansas.

Following the lead of more than 30 states and the District of Columbia, Arkansas is seeking to tax sales by businesses with substantial economic activity but no physical presence in the state.

Until recently, no state could require a business to collect and remit sales tax unless it had a physical connection to the state. However, the Supreme Court of the United States overruled this long-standing physical presence rule in its decision in South Dakota v. Wayfair, Inc. (June 21, 2018). It determined the defendants’ “economic and virtual contacts” with South Dakota were substantial enough to merit a sales tax collection obligation. Basing a tax collection obligation on economic activity is known as economic nexus.

Arkansas House Bill 1002 would establish economic nexus in the Wonder State. HB 1002 is an almost word-for-word replica of South Dakota SB 106, the law that led to the demise of the physical presence rule. It opens with a statement explaining why taxing remote sales is necessary: “The inability to effectively collect any Arkansas sales or use tax from remote sellers … is seriously eroding the sales and use 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.”

Sales tax software can simplify remote sales tax compliance 

Furthermore, the bill points out, it’s “neither difficult nor burdensome for remote sellers to collect and remit [Arkansas] sales and use taxes” because of “advanced computing and software options.” Arkansas is a member of the Streamlined Sales and Use Tax Agreement (SSUTA), an association of states working to simplify and reduce the costs of sales and use tax administration for remote sellers. SSUTA member states currently cover many of the costs associated with outsourcing remote sales tax collection and remittance for businesses that use a service provider certified by the SSUTA, such as Avalara.

Finally, HB 1002 justifies the proposed remote seller sales tax by referencing South Dakota v. Wayfair, Inc.: “The United States Supreme Court recently upheld the ability of states to compel out-of-state sellers with no physical presence in the state to collect state sales and use taxes.”

Small seller exception

Like South Dakota and numerous other states, Arkansas would allow an exception for small sellers. A remote retailer would be required to register with the state and commence sales tax collection only if, in the previous or current calendar year, it:

Has more than $100,000 in gross revenue from the sale of tangible personal property, other taxable property, and services for delivery into Arkansas; or

Has at least 200 separate sales transactions of tangible personal property, other taxable property, and services for delivery into Arkansas.

As with most other states that have adopted economic nexus, Arkansas would only enforce economic nexus prospectively (starting “the first day of the calendar quarter following the effective date of the act,” which is yet to be determined).

A list of state remote seller sales tax laws is available here.