Speaker Carter’s Capital Gains Tax Cut Bill Passes House Committee

House Speaker Davy Carter (R-Cabot) received approval for his capital gains tax bill, HB 1966, which raises the exemption level on new and existing investments.

The House Revenue and Tax Committee approved the measure on a voice vote on Tuesday afternoon (March 26).

The bill moves the capital gains tax exemption from 30% to 70% on two sets of investments. The first level of investment involves new investments starting July 1, 2013. By definition, income is considered an investment if it is held for more than one year.

The bill also moves the exemption level to 70% on existing investments in excess of $5 million.

The Department of Finance and Administration estimated that the tax cut would alter state revenues by $3.1 million in year one, $10 million in year two, $18.3 million in year three, and $27.9 million in year four.

DF&A deputy director Tim Leathers said his agency had “serious concerns” with the bill and said the state could have “significant exposure” as he cited an Oklahoma court ruling regarding capital gains taxes.

“The special treatment for Arkansas Property likely violates the commerce clause of the U.S. Constitution,” an analysis from DF&A explained.

“The court considered an Oklahoma law that imposed a longer holding period for an out of state capital gains treatment. The Court of Civil Appeals held that this distinction was unconstitutional under the commerce clause,” the DF&A legal opinion stated.

Carter said he’s not convinced that the legal interpretation is accurate, but he said he’d make changes if possible to satisfy concerns.

“I want people to invest in Arkansas,” Carter said. “We have to have job creators in this state, and I respectfully submit that passing this law will help.”

Earlier on Tuesday, the House Revenue and Tax panel approved a bill to reform personal income tax brackets in Arkansas. DF&A estimates that the income tax reform measure would affect state revenues by $57 million annually.