Online sales vs local business – A failed excuse for more tax

Online sales vs local business – A failed excuse for more tax
by David Ferguson

Proponents of an internet sales tax claim imposing the tax is necessary to “level the playing field” between local businesses and those out-of-state sellers who do not have a physical presence in Arkansas and therefore do not have to collect the tax.

Looks like their argument is a cruel hoax on local business. To explain, let focus on the online retail giant, Amazon.


Earlier this year Amazon began collecting the Arkansas sales tax. Amazon got a lot of PR in Arkansas media for “voluntarily” collecting the tax. If you think Arkansas needs an internet sales tax to make sure Amazon keeps collecting the tax, you are mistaken.

What the media ignored is when Amazon announced its “voluntary” collection of the tax, Amazon was in the process of buying Whole Foods, which has Arkansas stores. This means Amazon was going to be REQUIRED to collect Arkansas tax anyway.  The “voluntary” collection of taxes shortly before the purchase of Whole Foods appears to be nothing but PR.


The claim is Arkansans are buying from online stores to avoid paying Arkansas tax and therefore an internet sales tax is necessary to level the playing field.  The claim completely fails when you look at the following three factors.

  1. Amazon and Arkansas

A recent business report says Amazon accounts for 43% of all internet sales in the United States.[i] Let that soak in…. 43%.

With such a huge share of the internet market we can test the argument that shoppers are not buying locally in order to avoid sales tax. If Arkansas consumers are really shopping online to avoid tax, then once Amazon started collecting Arkansas tax, local businesses should have experienced a spike in customers coming back to local brick and mortar stores. Have you heard any reports of local businesses suddenly having a huge increase in sales?  Neither have I.

  1. Amazon and the United States

In just a year Amazon went from collecting the sales taxes of 28 states to at least 39 states. (As of this February Amazon was collecting sales tax in 38 states.[ii] Add Arkansas and that makes 39 states, and there could be even more states by now.) Five states do not even have a sales tax: Alaska, Delaware, Montana, New Hampshire and Oregon.[iii]  This means Amazon is collecting tax in at least 39 of the 45 states that have a sales tax.

Collecting sales tax in 11 more states over the past year didn’t hurt Amazon. Quite the opposite. One report says Amazon’s sales jumped 25% over the previous year.

If you think customers are driven to buy on the internet because of taxes, then how do you explain Amazon’s huge growth despite substantially increasing the number of states in which it collects sales tax?

  1. Overwhelming majority of internet sales in Arkansas are taxable

Amazon (with its 43% online market share) is not the only big player collecting Arkansas’s sales tax.

Many big retailers in the internet market also collect Arkansas’ sales tax because of having a physical presence in Arkansas. Just a few examples include: Walmart, Apple, Staples, Home Depot, Lowes, Best Buy, The Gap, Kohls, Target, Sears, Cabella’s, Bass Pro Shop, etc.  I bet you can think of even more big chain retailers with stores in Arkansas that must collect Arkansas sales tax. You can quickly see the overwhelming majority of internet sales are already subject to Arkansas sales tax. So much for the idea that an internet sales tax will bring customers back to local brick and mortar stores.

Sorry … there is no quick and easy solution to the woes of local brick and mortar stores.


With the overwhelming majority of internet sales already being subject to Arkansas’ sales tax, who is the target of the internet sales tax?

The target can only be sales by a relatively small part of internet sales: 1. Some big online retailers who do not have a physical presence in Arkansas; and 2. Many small businesses.


If the US Supreme Court were to reverse court precedent to allow Arkansas to impose an internet sales tax, then other states would quickly follow suit. Then it will be our small businesses engaged in online sales that would be hurt by the cost of having to comply with the internet sales taxes and regulations of many other states just to engage in interstate commerce.


With the claim of saving local stores looking like a ruse, then what is the goal? Clearly, a major goal is to find an excuse for government to collect more of your money.

If I was a cynic (which I am), I would also wonder if some proponents of the internet sales tax are wanting to help big business get rid of pesky startups, by creating a barrier to small startup businesses – a barrier created by the cost of having to comply with sales taxes and regulations of many states.


The Arkansas Municipal League is pressuring its members (cities) to pass resolutions urging Arkansas or Congress to pass an internet sales tax.  Several cities have already passed the resolution under the guise of helping small business. Has your city passed the resolution?  Is your city considering the resolution?

Has the Municipal League been misled too or are they just trying to get more tax money to cities. Perhaps your mayor or alderman on the Executive Committee of the Arkansas Municipal League.


So, what is  your opinion. Do you still think the internet sales tax is about saving local business or is it an excuse to pick your pocket.

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David Ferguson is a former Director of Arkansas’ Bureau of Legislative Research, having a thirty-two-year career as an attorney for the Arkansas legislature. After retirement from state service his primary focus has been beef cattle farming. He is also a former officer of Conduit for Action.