How does Arkansas’s origin-based sales tax system affect online and physical retailers differently?

Arkansas’s origin-based sales tax system affects online and physical retailers differently by determining tax rates based on the seller’s location rather than the buyer’s. For physical retailers located in Arkansas, they collect and remit sales tax at their local origin rates, simplifying compliance as they manage one set of rates based on their location.

For online retailers, especially those without a physical presence in Arkansas, origin-based taxation can be more complex. If they establish physical nexus through inventory storage, employees, or other means, they must collect Arkansas sales tax based on their origin location’s tax rates. However, without a physical presence, online retailers might not need to collect sales tax unless they meet economic nexus thresholds. This system contrasts with destination-based taxation, where online and physical retailers would collect tax based on the buyer’s location, potentially requiring multiple tax rates for multi-jurisdictional sales.

Thus, origin-based taxation can simplify tax obligations for single-location physical retailers while posing additional compliance challenges for online sellers without a physical presence, unless they establish nexus or meet sales thresholds.