Proposed internet tax is not about saving mom and pop stores

Senate Bill 140 by Senator Jake Files would impose Arkansas sales and use tax on most of your purchases over the internet.  The primary argument for the bill is that it levels the playing field between Arkansas stores that collect Arkansas tax and out-of-state stores that do not have to collect sales tax. Why is there a tax difference? The U.S. Supreme Court has said states can’t require out-of-state stores to collect the state tax unless they store has facilities in the state.

Leveling the playing field” is a nice sounding argument, but we think tax has very little to do with whether you purchase from an in-state or out-of-state store. SB140 certainly isn’t about saving mom and pop stores.

Is this bill really about leveling the playing field between in-state stores and out-of-state internet stores? We don’t think so. Lets consider your purchasing habits for both your in-state purchases and your out-of-state internet store purchases

In-state shopping habits and variations in local taxes

If taxes were a big factor in shopping then there would be a dramatic shift in which Arkansas cities and counties people go to shop. Every city and county in Arkansas decides how much sales tax to impose and the rates differ as you cross city and county boundaries.

When you go to buy a lawn mower, a computer, or groceries from an Arkansas store, do you pick which store to go to by deciding which nearby city or county has the lowest tax rate? If taxes were such a big factor as supporters of the bill claim, we would assume you would be constantly crossing city and county lines to find the lowest local sales tax rate. Do you really do that?

Out-of-state internet store shopping habits and taxes

Are taxes a big factor in deciding whether to shop an out-of-state internet store? Do you buy from an out-of-state internet store because you want to avoid Arkansas taxes or do you have some other reasons?

Have you bought items from internet stores for any of these reasons? If so, taxes were not the reason for your internet purchase?

  • Convenience. Internet purchases are delivered right to your door. You don’t have to drive around from store to store trying to find what you are looking for.
  • Availability. Sometimes items are purchased through the internet because it wasn’t available at local stores. Even your big Walmart super center does not carry all the items you want in the brand you want.
  • Speed. Have you been late in buying Christmas gifts and had to pay extra for expedited shipping to receive the item in time for Christmas? Then the difference in tax was not keeping you from buying local.
  • Retail price. Have you bought an item over the internet because the retail price is much lower than what you can find locally? The internet gives consumers the opportunity to comparison shop.

When you factor in shipping costs an out-of-state internet purchase may cost more than going to an Arkansas store.  Yet, for most shoppers, other factors outweigh shipping costs. Yes, sometimes internet companies have deals where you pay no shipping, but that gimmick is a part of the cost of doing business and they could have reduced the price instead of promoting a shipping deal.

Mom and pop stores versus who?

We doubt out-of-state internet stores are the biggest challenge for mom and pop stores. Walmart is likely their biggest challenge.  We like our mom and pop stores and support them. We find one of the advantages of shopping at many mom and pop stores is they often have the knowledge and experience needed to help customers. Walmart and internet stores can’t offer that.

Walmart versus other internet sites

This bill seems to have more to do with Walmart than mom and pop stores.

You can’t do a comparison between Walmart internet sales and the sales by out-out of-state internet stores.  Taxes probably don’t keep you from buying online from Walmart. If you see what you want is available from Walmart and you are willing to pay their price, you will go to Walmart to buy it instead of completing the purchase on the Walmart internet site, because you are going to Walmart anyway to buy something else.

Taxes and leveling the playing field

After considering your buying habits, do you still think this bill is really about leveling the playing field for Arkansas stores, especially for mom and pop stores? So, what is the real reason for the bill?