Government services such as streets and roads, police protection, fire departments and court systems are paid for in large part by sales taxes. Over the past two years, sales tax revenue has not grown to match the increased demand for services.

In fact, for the first three months of 2014, sales tax revenue for Conway actually declined by 1.5 percent. Faulkner County and other municipalities in the county are also dependent on sales taxes to fund their budgets. For the first quarter in 2015, sales tax revenue for the county was down 0.1 percent.

The Arkansas sales tax rate is 6.5 percent. Conway adds 1.75 percent, and Faulkner County adds 0.5 percent bringing the total for purchases in Conway to 8.75 percent. Sales tax rates for Arkansas citizens are among the highest in the nation. Nearly all of the incorporated municipalities in Faulkner County have local sales tax rates that vary from 1-2 percent.

Of Conway’s 1.75 percent, 1 percent goes to the general fund for current operations and 0.75 percent to retiring bonds and capital improvements. The county’s 0.5 percent is split between roads and the judicial system.

Conway’s 1 percent sales tax generates approximately $13 million per year, which provides almost half (45 percent) of the city’s operating budget. The county’s half percent generates approximately $8 million per year, which covers 22 percent of its budget.

Flat receipts - the cause

Why are sales tax revenues not growing, which is not just a Conway phenomenon but a national problem as well? Business seems to be good, the work force has expanded, unemployment is lower, automobile and restaurant sales are up. However, consumers are turning more and more to the Internet (e-commerce) to purchase durable goods.

The net offers convenience, a wider selection of goods and no sales taxes on many purchases. It is estimated that in 2012, 6 percent of all retail sales were online ($225 billion). This is projected to increase by 2017 to 10.7 percent or $370 billion.

Vendors are not required to collect sales taxes on Internet sales unless the vendor has a physical presence in the state. If you buy online from Walmart, Sears, Best Buy or Barnes and Noble, for example, you will be charged sales tax because they have brick and mortar stores in Arkansas or a presence in some way. But if you buy from Amazon, the largest online vendor in the world, or other online vendors that have no presence in Arkansas, sales taxes are not collected.

Residents are supposed to voluntarily pay sales tax on online purchases, but few do. Public institutions and businesses are audited, and they do pay sales taxes on these purchases.

Amazon reported that its customers ordered 37 million items (428 items per second for 24 hours) on Cyber Monday, the Monday after Thanksgiving, the busiest e-commerce shopping day of the year. That figure is a healthy 39 percent higher than last year’s peak day.

Holiday sales between Thanksgiving and the end of the year account for 20 percent of the retail industry’s annual sales on average. Analysts who track Christmas holiday sales state that 26 percent of 2012 sales were online. For 2013, the projected percentage is 35.

The solution

Starting in 1992, a series of lawsuits led to The Internet Tax Freedom Act in 1998. (Initially the act banned taxing Internet access and Internet-only taxes — but a series of court cases extended it to all Internet purchases for vendors with no presence in the state of the sale origin.)

In November 2014, the Internet Tax Freedom Act expires. There is strong sentiment not to extend this act; but not extending the act does not solve the problem of how states will collect the tax, particularly at the local level.

Arkansas U.S. Representative Steve Womack introduced the Market Place Fairness Act of 2013 that grants states the authority to compel online and catalog retailers to collect sales tax at the time of a transaction.

However, there is a caveat: States are only granted this authority after they have simplified their sales tax laws so that vendors do not have to collect a different rate for each location in the state.

There are several options for states to accomplish this. This Market Place Fairness Act has bipartisan support and the support of major retailers such as Walmart, Best Buy and Barnes and Noble.

The bill has passed the Senate but languishes in the House of Representatives. Dr. Dean Kumpuris, one of Little Rock’s city directors, had an excellent editorial piece on this issue in the May 29, 2014 Arkansas Democrat Gazette. I highly recommend this article.

You can obtain sales tax data for all incorporated cities in Faulkner County by going to the Pulse of Conway website (

I thank my friend Chris Spatz for editing and helping me with this article.