House panel advances tax break for military retirees, removes planned tax hike on manufactured housing

After a patriotic endorsement from Lt. Gov. Tim Griffin, a House committee on Thursday (Jan. 26) approved a rewritten bill to offer an income tax break for military retirees and their families that supporters say will enhance the state’s job recruitment efforts and allow Arkansas to compete with other states that have similar laws.

“All you got to do is look at not only neighboring states, but states across the country that have tax laws – that to be frank – are better than ours,” Griffin, a colonel in the U.S. Army Reserves, testified at a standing room only House Revenue & Taxation Committee meeting. “Our tax codes are a mess from top to bottom in my view. On this particular point, they are beating us.”

Griffin’s lengthy and colorful testimony in support of House Bill 1062 was part of 90-minute debate on the second plank of Gov. Asa Hutchinson’s board tax reform package that also includes a $50.5 million tax cut for the working poor and the creation of a Blue Ribbon panel to revamp the state’s tax code.

The legislation, sponsored by Rep. Charlene Fite and Sen. Jake Files, both Republican lawmakers from the Fort Smith area, came to the House panel after lawmakers held closed-door meetings over the past week to quells concerns over an earlier version of the bill that raised taxes on manufacturing housing sales.

In the end, lawmakers ended up with a 34-page amended proposal that had raised just as many questions and concerns as the first bill, but in the end received a unanimous “do pass” recommendation from the panel in an overflowing Capitol meeting room that included dozens of military veterans.

Still, Griffin, Fite, Files and Department of Finance and Administration officials received a volley of questions from committee members who questioned details of the bill, including concerns over the costs of the bill using tax increases that some lawmakers say will hurt struggling workers and the poor.

“My question … is how we are going to pay for this?” Rep. Kim Hendren, R-Gravette, asked Griffin and the bill’s co-sponsors. “I’m for it if we can pay for it, but I’m not for it if we are going to say let somebody else pay for it.”

Under the original bill, which mirrored Gov. Hutchinson’s proposed first introduced in early December, all retirement benefits of retired military service members would have been exempted from state income tax – which would cut state general revenues by $13 million. To pay for the tax cut, the governor proposed removing the exclusion from income on unemployment benefits, which he said would create $3.1 million in additional generation revenue. The most controversial part of the plan, however, called for applying the sales tax on the full cost of manufactured housing and candy and soft drinks, which would raise an extra $2.4 million and $13.8 million, respectively.

Hutchinson’s military-friendly plan also would reduce the state’s so-called “syrup tax” by 40%, and apply the extra $6.3 million to the Medicaid Trust Fund. Hutchinson said the tax was originally passed as a temporary measure. Altogether, the proposals would add $19.3 million to state tax coffers from closing those exemptions.

The amended bill introduced to the House panel on Thursday keeps the manufactured housing levy as-is and levy the full tax on specified digital downloads and soft drinks and candy. The bill also included an extra measure to lower the current “syrup” tax on soft drink ingredients sold by wholesalers.

Rep. Michael Gray, D-Augusta, peppered the two co-sponsors with questions about what he called a soft drink “tax cut,” and why it was included in the bill at the last minute.

“There has been plenty of debate and lobbying over the increases that we have to put in this bill for the military retirement exemption, and I am not here to re-debate that …, but my question was more so to the other tax cut that’s in this bill,” Gray quizzed Sen. Files. “It seems like this is another tax cut that is riding the coattails, forgive me for the expression, of the military retirement bill.”

Files, chair of the Senate Revenue and Tax Committee, explained that the impetus to include all the changes to the bill was to make it revenue neutral, and make sure the legislature did not have to cut spending once the budget is balanced. Files also mentioned the fact that at the end of the 2015 session, many state agencies experienced a 1% budget cut.

“I don’t disagree that it seems like it is riding the coattails, but this is something that has been talked about in the past (and) this was a way of trying to achieve two goals at one time and make it revenue neutral at the same time,” said Files. “I don’t know if that specifically answers your questions, but that is the best I think I can do with where we are.”

In closing for her bill, Fite told lawmakers concerned about the tax increases that the bill when signed into law would pay for itself by attracting tax-paying, revenue-generating military retirees and veterans to Arkansas.

“We believe this – and we have the studies to back it up – will pay for itself after a number of years, perhaps four or five years,” Fite said. “We have a skilled workforce, but unfortunately they are leaving our state and they are going to Tennessee, Missouri, Oklahoma, Texas, Missouri, Alaska and Maine, and they are not staying in Arkansas. ,,, Who is this workforce that is ready to go to work, has experience and has already proven to be drug free and have the skills that we need in this state? They are our retired military.”

Following the House debate, Mayor Gary Fletcher of Jacksonville and Nathaniel Todd of Pine Bluff, an Army veteran, testified in support of HB 1162. Fletcher told lawmakers the legislation would bring a better caliber of worker to state, and help keep experienced retirees from the Little Rock Air Force base in Arkansas.

“You know it is easy to see the cost on the front end, but there is also a cost associated with doing nothing,” Fletcher said. “I think if we are going to be competitive in this global economy, we need to be competitive with the states surrounding us as well.”

Todd told the panel that when he retired from the Army in Oklahoma, he decided to come back to Arkansas where he grew up in Jefferson County. He said he has bought a home, pays taxes and has paid college tuition for five children in Oklahoma.

“I think that this bill will help our economy in bringing workforce and those that will buy homes, and hopefully their grandchildren will come back to our state,” he said.

In a press conference with reporters after the House panel met, Gov. Hutchinson called the syrup tax situation “a good balance.” The governor said he had identified three exemptions he thought made sense, but the legislature felt more comfortable with the digital downloads than the manufactured home exemption.

“My principle was that we’ve got to pay for it,” he said. “They picked a different means of paying for the military retiree benefit than I did, but as long as that has the consensus, it can pass and it pays for it, I’m happy with it.”