The city of Bentonville is expecting an $8.5 million budget gap in this year’s general budget. That’s because of an unprecedented level of sales tax rebates projected to come out in 2025.
Sam Hoisington, founder of Bentonville Bulletin and the first to report on this, says under state law, many business expenses more than $2,500 are eligible for tax rebates.
“And so basically, the business pays sales tax on their purchase upfront at the time of the sale. But then sometime in the next 12 months, whenever they choose, they are able to submit a form and get that sales tax rebated back to them,” Hoisington said. “So basically on many, many purchases that businesses might make over $2,500, they get all of that local sales tax back.”
And so, rebates in Bentonville are projected to reach $15 million in 2025, roughly double what city staff expected that number to be. How is that possible that the city didn’t know that it was going to be that high?
“So there’s a couple different things at play here,” Hoisington said. “When those businesses pay that sales tax, they actually pay the state government. So the state handles all of those transactions and then just gives the city its cut. So there’s a little bit of unpredictability built into this system already. The city doesn’t know when in those 12 months they’re going to have a rebate taken out of their next check. And since it’s all handled by the state, they don’t really have details on those purchases. So it’s really hard to see what is coming or could be redeemed in the future.
“And then to make matters even more confusing, in this particular situation, there were a large amount of rebates in Bentonville that were put in this sort of purgatory at the state. It is an audit stage that city officials did not even know about. So while this large number of rebates that actually dates back to 2023 was being double-checked by the state to make sure everything was in order, it delayed that until this year. And so we’re not just seeing rebates that are being cashed in from 12 months ago. It’s actually up to 24 months and maybe even a little bit further than that.”
Wow. And so the city has no way of knowing that’s even in purgatory? Is that what you’re saying?
“Absolutely right. So the estimate for this year is that $15 million will be redeemed in sales tax rebates, and about 60 percent of that is from one particular company. It’s Walmart. And so while the city does not have insight into these purchases, they say that Walmart has been cooperating, kind of letting them know what to expect in the months to come.
Anyone who’s been to Bentonville in the last 12 to 24 months has certainly seen a whole lot of construction. A new home office there in Bentonville. The majority of the rebates, as you pointed out, were Walmart projects. Did city leaders anticipate this big of an impact coming from Walmart specifically?
“I think that everybody I talked to for this article did connect this increase in sales tax rebates to the new campus that has been built in the city of Bentonville. But there’s really no way to say that for certain. I don’t have insight into the exact purchases that are being rebated, and actually, neither does the city.
“Definitely there are some larger questions here, right? For this level of sales tax rebates to be claimed, well over $600 million worth of stuff had to be bought in Bentonville. So that presumably boosted our economy—maybe construction jobs, more money circulating, things that can be taxed in the future. But those numbers are a little bit more squishy. It really takes an economist to figure out exactly what the ripple effects of that are. Right now, what we’re looking at is the city needs to find $8.5 million. And that is a very concrete, very real problem right now.”
What do you think it says about Bentonville’s dependence on one company for both growth of the city and also fiscal strain on that city?
“I think it is notable that Walmart is responsible for 60 percent of these rebates, but that also means there’s another 40 percent that also represents significant economic activity. But I think it really goes back to some much larger questions than my particular article in this situation would be able to get into, which is, you know, when these economic incentives are offered, are they always a good idea?
“And another thing about this is the state is the one that mandates that this local sales tax be returned. The state is not rebating their percentage of the sales tax. So they say you all need to do this, but not us. So maybe if this is something that we want to keep doing, city leaders have suggested to me that maybe the state needs to come in a little bit. Let’s split this tax burden a little bit. Don’t force the local governments to refund all of their sales tax on these rebate purchases.”
I’ll just ask you this pretty frankly. How bad is this for Bentonville?
“I think the city is managing pretty well. A 10 percent reduction in a budget is not easy to do, but there are no layoffs planned for this. But sales tax exists for a reason. This is the number one revenue stream for the city of Bentonville that funds all of those essential services that you think of when you think of a city government. So it’s definitely not an ideal situation to be in.”
How does this impact, do we know at all, there's been some very serious issues about sewer and water and these sorts of things too. Certainly, that would put a delay on the sort of work that can happen there, right?
“I would say that’s probably not a great thing to connect to in this situation, because really, at its simplest level, there are two different buckets of money here. Utilities are supposed to be self-supporting based on rates that customers pay for those services. So water and electric, those are really seen as businesses that the city owns, so they’re actually not included in that hiring freeze in a lot of cases.
“The other parts of the city government—police, fire, parks, library—all of those things that you really think of when you think of the city, those are funded primarily by sales tax, so they are two separate things.”
I think you spoke to Patrick Johndroe in your reporting, and he previously called this situation a champagne problem. Does that seem like a fair assessment?
“I think that does feel like a fair assessment. So going back to that rebate number, well over $600 million would have had to be spent in Bentonville to even add up to this level of rebates. So presumably there is economic activity tied to that, but it’s just a little bit harder to pin down. And of course, Walmart is the biggest employer in Bentonville. Huge new campus. There’s a lot of different things that go into this, but there are probably a lot of cities that did wish they had this kind of economic activity.”
What surprised you the most about this reporting?
“I think the devil is in the details on this situation. If you just read the headline on this, you’re not going to understand the situation. It took me quite some time to kind of get to the bottom of all of this and how these things work. And I think it is useful information for people to understand how these rebates work, because it is very tempting to say this is a one-off situation. There were just some large purchases and now this happened.
“But if you look at the things that have been announced in Bentonville for the years to come—a new STEM university, a new medical campus—this situation could come back up again. City leaders and the finance department have really had to start looking at the sales tax revenue that they get a little bit differently.”
Thank you, Sam. Appreciate your time on this.
“Thank you.”
Sam Hoisington is the founder of Bentonville Bulletin. You can find the full print version of his reporting here.
Ozarks at Large transcripts are created on a rush deadline. Copy editors utilize AI tools to review work. KUAF does not publish content created by AI. Please reach out to kuafinfo@uark.edu to report an issue. The audio version is the authoritative record of KUAF programming.
