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Arkansas tax law creates confusion for carwashes

LITTLE ROCK, Ark. — A bill with tax decreases and water usage fees has some business owners scratching their heads.

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LITTLE ROCK, Ark. — According to www.nwaonline.com, after receiving feedback from constituents, some Arkansas lawmakers are second-guessing legislative changes approved earlier in 2019 in regards to taxing some types of carwashes.

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The changes, which both added fees and reduced taxes of carwashes, were tacked on to a state law with other tax provisions and went into effect on Oct. 1st, the article continued.

State officials projected that the change in the taxation of carwashes would reduce state revenue by $3.2 million a year (the state general revenue budget totals $5.75 billion this fiscal year), the article noted.

State Sen. Gary Stubblefield, R-Branch, called a meeting of the House and Senate City, County and Local Affairs committees last week after a constituent called him about “the new tax on water usage in carwashes,” he said.

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Stubblefield added, “There is a situation where some of these carwash owners had other businesses, such as a [public laundry] or a convenience store, hooked up with the same meter. In my opinion, there is no way to accurately determine or estimate the water usage in these carwashes when you have that type of situation, other than putting in a separate meter.”

Act 822, the new tax law, changed the taxation of carwashes because there was a “tax fairness issue,” according Paul Gehring, an assistant revenue commissioner for the state.

Some types of carwashes were subject to the state sales tax, and some weren’t, the article noted.

As such, Act 822 imposed monthly water usage fees on operators of tunnel carwashes and automatic carwashes but not on self-serve bays, the article stated.

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The fee is calculate on eight-tenths of the total number of gallons of water used during the month and levied at four-tenths of a cent per gallon on tunnel carwashes and two-tenths of a cent per gallon on automatic carwashes, the article explained.

In addition to the water usage fee, Act 822 exempts the following from sales and use tax: “tangible personal property, specified digital products, or a digital code by or to a carwash operator for use in an automatic carwash, a carwash tunnel or a self service bay or as part of an ancillary service” as well as services to a carwash operator and ancillary services by a carwash operator, the article stated.

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The Department of Finance and Administration recommended that affected businesses have one water meter for the carwash and a separate meter for the ancillary business, the article noted.

However, Wade Dunn, who owns Eastside convenience store, laundry, deli and carwash in Glenwood and the Charleston Superstop gas station and convenience store in Charleston, said that simply installing a water meter on the automatic carwash isn’t possible, the article continued.

He noted, “Inside the carwash, you have a water softener, [and] in that water softener, they are sending water over here to the manual bay and sending water over here to the automatic bay. You also have a reverse osmosis system that is sending water over here to the automatic bay and sending water over to the manual bay, so it is not simply putting a water meter on one pipe — a $200 water meter on a pipe. It is completely overhauling it, adding a water softener and reverse osmosis system. It is just too complicated.”

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Finance department officials estimated that they would collect about $1.5 million a year in water usage fees from carwash tunnels and automatic bays, the article stated.

Gehring said carwash operators have submitted about 86 reports for one month of water usage, and the total amount in fees collected during November was about $49,000, the article added.

About 100 carwash companies — some with multiple sites — have registered to pay the water usage fee, the article noted.

The carwash industry provided information to the department that there are 672 carwash businesses in Arkansas, with 67 carwash tunnels, 484 automatic carwashes and 1,814 self-serve bays, the article continued.

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Stubblefield said that in the future, tax increases should be in a standalone bill and not shoved in with tax decreases; furthermore, he plans to propose legislating changing the taxation of carwashes in the 2021 regular legislative session, the article concluded.

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