Editor’s Note: This is the second of a three-part series looking at the issue of local and state sales tax collection on internet purchases. Look for the third and final installment in Friday’s News-Times.
El Dorado city officials are firmly behind proposed federal legislation that would authorize states to enforce local taxes on out-of-state online retailers.
The El Dorado City Council previously passed a resolution endorsing the measure and backing efforts by the Arkansas Municipal League trying to drum up support for similar legislation that is being considered by state lawmakers.
With the city starting off the year with a $1 million revenue shortfall in the general fund, city officials said tax collections on internet purchases would not only generate more revenue, it would also put local businesses on an even playing field with their online counterparts.
Mayor Frank Hash said the topic was on the agenda during the Municipal League’s 83rd Annual Convention in June.
In April, the Arkansas House of Representatives voted down a Senate bill that would require state and local sales taxes to be collected on internet sales.
While presenting the proposed resolution to the city council three weeks after the Municipal League convention, Hash said the state — thus, the city — is losing “lots of money” because out-of-state internet sales are not taxed in Arkansas.
“One of the deals is the internet sales are putting your mom-and-pop type stores out of business because they can’t compete. They don’t have to maintain a storefront or anything else,” the mayor said. “They have an advantage by not paying taxes, in addition.”
Hash and the city council’s Finance Committee have said that while city 2017 revenues are not “smooth sailing,” there has been an uptick in state turnback funds, thanks in part to a voluntary step taken earlier this year by internet giant Amazon to pay local sales taxes on goods that are sold in Arkansas. The Arkansas Municipal League Executive Director Don Zimmerman has referred to the increase as the “Amazon effect.”
The boost in sales tax collections for the state means a boost in turnback funds for the city.
“We’re doing better on our finances … It’s made a big difference. Of course, they said Amazon is as big as Walmart now,” Hash said. “It’s definitely upward bound instead of downward bound.”
Alderwoman Dianne Hammond, who heads up the Finance Committee, said recent reports had shown that sales tax collections for the state were up by 7 percent.
Calion Mayor Karen Evans said Calion has seen the average monthly returns from the state for sales tax collection increase by $400 per month from last year.
In Felsenthal, officials reported a $40 increase over monthly returns from 2016 and Smackover reported an almost $600 increase.
The $1 million drop in El Dorado’s revenue was primarily attributed to the conclusion of large construction and maintenance projects that had drawn hundreds of contract workers into town for extended stays.
Low consumer spending was also a contributing factor.
In response to the revenue shortfall, city officials instituted several cost-cutting measures at the start of the year, including holding off on many capital expenditures and the city’s annual street repair program and asking city department heads to cut their budgets to the bare bone.
To monitor the situation closely, the city’s Finance Committee agreed to meet monthly and review financial trends.
Alderman Billy Blann pointed out that an existing state law says that sales tax is owed on any purchase that is made in or out of state by Arkansas residents.
However, there is no requirement for a business to collect sales taxes if it is not physically located in Arkansas.
“It’s voluntary, rather than mandatory. If you purchase out the — across state lines, you’re supposed to turn that in,” Blann said.
Supporting local businesses and services
Union County Quorum Court member Dean Storey said that in addition to the negative impact on small businesses, the failure to collect taxes on internet sales also cuts into revenue that can be used for services provided by the state and local governments.
Hash agreed, saying, “A lot of people wonder why the stores around the square are not as viable as they have been years ago. Well, they are not working by the same rules as these stores on the internet.”
“They have to maintain property, they have to maintain inventory, and everything else that someone sitting in their home — literally, sitting in their home — making sales from some giant warehouse. It’s unfair,” the mayor continued.
Added Storey, “It’s not fair. To me, it’s sharing the burden.”
Members of Main Street El Dorado and the Downtown Business Association also spoke in favor of proposed federal and state legislation.
“One thing they’re not doing is supporting the community or the state if people aren’t paying taxes,” said Paul Choate, president of the Main Street Board of Directors.
“Every dollar we spend in the community will turn over a half a dozen times,” Choate said. “By shopping small and shopping at home, whether it’s on North West Avenue or Main Street, it’s supporting the community.”
Anne James, co-owner of Sports Alley and a member of the Downtown Business Association, acknowledged that not paying sales taxes on internet purchases helps residents’ personal budgets.
“Everybody likes to save money if they can, and you don’t have to pay that 9.75 percent (El Dorado sales tax rate), but that’s taking away from our quality of life here in South Arkansas,” James said.
Hash also noted that while having to pay taxes for internet sales has a “downside” for people who oppose the measure, the benefits must also be considered.
“Without taxes you can’t pave the roads, and you can’t do a lot of things, and it’s not exorbitant, in my estimation. I do a lot of internet purchases, and I don’t mind paying proper taxes,” he said.
James also encouraged residents to focus on the advantages.
“We employ 12 people here, and if you don’t support local businesses, it puts them — local people — out of work, and they won’t have money to spend and put into our economy,” she said. “We need to consider (that) if we want El Dorado to be a better place to live and work.”
James and city officials referred to the opening of the Murphy Arts District, a $100 million project that supporters are hoping will be transformative for the city.
El Dorado Festivals and Events, Inc., a private nonprofit organization that is spearheading the project, has said the goals of MAD are to make El Dorado a destination that will draw visitors who will broaden the city’s tax base; create a new industry based on entertainment; and spur entrepreneurs to start ancillary businesses.
Job creation will also fall within the district itself, with positions to manage and operate the many facets of MAD and staff to man the various performance venues and restaurant.
In addition to visitors who will be in town for MAD events, local hotels are expected to be full a year from now with an influx of contract workers who will be coming to town for turnaround projects for at least two local industries.
If legislation requiring internet sales taxes has passed by then, city officials said that would mean more money pumped into the economy and city coffers.
City Editor Janice McIntyre and reporter Haley Smith contributed to this article.
Tia Lyons may be contacted at 870-862-6611 or firstname.lastname@example.org.
Should local and state sales taxes have to be collected on any internet purchases regardless of whether the company is located within the state? Why or why not?
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