How technology helps you avoid paying taxes

By Steve Brawner
© 2017 by Steve Brawner Communications, Inc.

If you’re reading this, there’s a good chance you’ve cut your own taxes in recent years by evading them, probably unwittingly, thanks to the internet.

That would apply to you if you are buying products online these days from an out-of-state seller who doesn’t collect sales taxes, even though state law says they’re just as due as if you bought the goods from your local merchant. The local merchants certainly don’t like that, because it means the prices they charge are 8-9 percent higher through no fault of their own.

This is happening because while the state government requires the merchants to collect the tax, the federal government, by virtue of a Supreme Court decision, forbids state governments from requiring the same of out-of-state sellers. Buyers are supposed to pay the taxes on their own, but few taxpayers comply, either because they don’t know, or they don’t know how, or it’s just too inconvenient. There’s a form to fill out, and buyers would have to keep up with a year’s worth of purchases and determine which sellers with a presence in Arkansas collected the tax, and which sellers from elsewhere didn’t.

The current state of affairs obviously is unfair to local merchants, which is why big ones like Walmart and small ones alike want to change it. There’s also the numerical reality that the state has collected $102 million less in revenues this fiscal year than it expected to collect, and $51 million of that is because of lower than expected sales taxes. How much of that is because people are buying more online from out-of-state sellers? Some.

But changing the law is hard because of that Supreme Court ruling and because making people pay a tax they currently can avoid certainly feels like a tax increase. Lawmakers prefer cutting taxes, which they did this legislative session for lower-income Arkansans, for veterans, for manufacturers, and for soda pop.

Still, there were efforts. During the legislative session, which recessed Monday, one proposal would have required larger online retailers to charge the tax while watching to see what happens in a South Dakota court case that would challenge the existing federal prohibition. Senate Bill 140 by Sen. Jake Files, R-Fort Smith, failed in the last day of the session in the House, though it may or may not have helped inspire Amazon, the biggest online seller, to begin collecting sales taxes in Arkansas voluntarily March 1. Another bill would have required those retailers to tell Arkansas consumers how much sales tax they owed. That one by Rep. Dan Douglas, R-Bentonville, passed the House but never even got a vote in the Senate. Meanwhile, U.S. Rep. Steve Womack has tried for years without success to address the issue at the national level in Congress, which is where it should be addressed. That effort hasn’t gotten very far.

This isn’t the only tax cut Arkansans have received in recent years thanks to technology. The primary means for funding roads is the motor fuels tax, which is paid on a per gallon basis. Its advantage is that it’s a user fee – those who uses the government service pay for it, and those who use more, pay more. But as cars have become more fuel efficient, they require fewer gallons to travel the same distance, which means drivers are paying less in taxes to drive on roads that cost more to build and maintain. Meanwhile, the motor fuels tax hasn’t increased at the federal or state level in decades.

Douglas tried to address this issue with a 6.5-cent wholesale fuel tax to fund a bond issue referred to voters in 2018, but it never even passed the House.

No one wants to pay higher taxes. What’s more likely is significant tax reform changing which taxes we pay, at least at the state level. To generate ideas, state legislators this past session created an Arkansas Tax Reform and Relief Legislative Task Force that will start meeting soon.

I don’t know how it gets past the constitutional issues on the online sales tax, but clearly something needs to be done about highways. The cleanest solution would be to increase a user fee for highways while decreasing taxes that pay for other things.

That would mean spending less on those other things, which sometimes can be almost as hard politically as raising taxes. Maybe another task force?

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