Leader Blues

Thursday, October 04, 2007

TOP STORY >>New law changes sales-tax method

By JOAN MCCOY
Leader staff writer

A new law that goes into effect Jan. 1 will change the way tax is collected on building material. The tax will be collected where the supplies are delivered, not where they are sold.

For Cabot, that means the city will lose its 2 percent sales tax on lumber and other building materials delivered, for example, to Ward or Austin.

For Ward, where the local sales tax is 1 percent, that means additional sales tax revenue from houses built inside the city limits. For Austin, which has no city sales tax, builders will pay only the 1 percent county sales tax that’s collected all over Lonoke County.

However, if the building materials are not delivered by the seller, the tax where they are sold is applied.

For example, someone living in Beebe, which has no city sales tax, who buys a washing machine at Home Depot in Cabot, loads it into a pickup truck and takes it home, would pay Cabot’s 2 percent tax and Lonoke County’s 1 percent tax, not White County’s 1.5 percent tax.

Cabot Clerk-Treasurer Marva Verkler said she and her counterparts across the state are only beginning to collect information about the new law, passed as part of an initiative for states to cash in on Internet and catalog sales for which sales tax is not usually collected.

Verkler said the new law could potentially net Cabot more in sales tax revenue because builders and other residents often go out of Cabot for such purchases as appliances and lighting. If those items are delivered, then Cabot collects its 2 percent tax.
But the Arkansas Municipal League is advising cities to not count on extra revenue until a trend is evident.

Since it will be March 2008 before a state disbursement and months later before a trend is discernible, Verkler said it could be late in 2008 before it is clear whether the new law will help or hurt the city.

The new state law was passed to comply with the Streamlined Sales Tax Project, of which 23 of the 45 states with sales taxes are now members. The states have banded together with a common goal of streamlining their tax laws in such a way as to show Congress that it is not difficult for Internet and catalog businesses to collect taxes from their out-of-state customers.
Tom Atchley with the Arkansas Department of Finance and Administration said that for now, those businesses collect taxes on a voluntary basis only.

In the past 18 months, 600 out-of-state internet businesses have collected about $5 million in Arkansas sales taxes, he said. With federal legislation, all Internet and catalog businesses would be required to collect taxes for the point of delivery, he said, and that could mean a significant increase in revenue for the state and cities.

Don Zimmerman, executive director of the Arkansas Municipal League, said the Streamlined Sales Tax Project has found a lot of support among state businesses like Wal-Mart.

“Wal-Mart is all for this because the brick-and-mortar stores are being undercut by the Internet,” Zimmerman said.

Zimmerman said he has heard complaints from business owners that customers will examine merchandise at their stores and then go online to buy it.

“Their contention is that (streamlining tax collection and getting Congress to pass the necessary legislation) would level the playing field,” he said.