Lawmakers look to amend military tax break proposal, manufactured housing levy likely pulled down

Supporters of legislation to use state tax incentives to lure military veterans to Arkansas plan to hold off introducing their proposals to House and Senate committees until next week to allow time for the governor’s larger tax cut proposal to wind its way through the legislature.

Lawmakers, after push back on provisions that raise the levy on manufactured housing and candy and soft drinks, were still working on making amendments Thursday afternoon that would quell some of the concerns of legislation that mirrors a pitch by Gov. Asa Hutchinson ahead of the legislative session that began on Jan. 9.

The changes will need the approval from Gov. Asa Hutchinson, who traveled to Nevada to make a major job announcement on Wednesday and is heading to Washington, D.C., this weekend to attend the inauguration of President-elect Donald Trump.

Rep. Charlene Fite, R-Van Buren, said she withdrew House Bill 1003 from the House Revenue and Taxation Committee’s calendar for further study on the recommendation of the House panel, which held its first official meeting with a planned agenda on Thursday.

“I pulled my bill down because we are filing a new (one) — a new and improved version,” Fite said. “My bill is the same one that (Sen.) Jane English filed in the Senate. We are amending it tomorrow and there will be some changes to the manufactured housing part.”

The Senate version of the legislation sponsored by English, R-North Little Rock, would roll back taxes on all retirement pay for veterans and their surviving spouses from state income taxes at a total cost of $13 million. Today, state law exempts the first $6,000 of veterans’ retirement incomes from state income tax considerations.

To pay for the tax cut to military veterans, the governor’s proposal would remove the exclusion from income on unemployment benefits, which he said would create $3.1 million in additional generation revenue. The plan also calls 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.

Fite said lawmakers in the Senate met late Wednesday afternoon to make changes to several portions of the bill, but she wasn’t able to attend because she fell ill earlier in the day. She said a new draft of both the House and Senate versions of the bill would be filed tomorrow or by week’s end. English said Senate leaders and others were making changes to her bill that will address concerns by some lawmakers that applying the full tax on manufactured housing amounts to raising taxes.

“Once those changes are made, I plan to run my bill on Wednesday of next week,” she said.

Sen. Jake Files, R-Fort Smith, said he expects English’s amended bill to tax digital downloads instead of manufactured housing. For instance, if a person buys Turbo Tax at Wal-Mart, they pay sales tax, but if they download it on a home computer, they don’t. According to state tax law, any “canned or custom” software delivered electronically or by the “load-and-leave” method is not taxable.

Files said the revenue that would be raised from applying sales tax to digital downloads would raise approximately $3.7 million – money that would eliminate the tax increase on manufactured housing and would allow room for a possible reduction of the soft drink tax.

J.D. Harper, executive director of the Arkansas Manufactured Housing Association, has been pushing lawmakers in both chambers to make changes to Fite’s and English’s proposal. Although Harper said he personally supports a tax break for military veterans, his group opposes the governor’s proposal to hike the sales tax on manufactured housing. He has publicly said Arkansas taxes on manufactured housing are already the highest in the region, explaining that an additional tax would raise the levy on mobile homes to nearly twice that of a newly constructed house.

BLUE RIBBON PANEL PLANS

On Wednesday, Sen. Jim Hendren, R-Gravette, told reporters lawmakers would likely pass Hutchinson’s $50.5 million tax cut bills before tackling the more controversial military tax measure. The Senate Revenue and Tax Committee on Wednesday gave a “do pass” recommendation to Hendren’s Senate Bill 115, the governor’s tax break for low-income workers making less than $21,000 a year.

“I think we will see movement on that next week. There was a lot of confusion between the (tax cut) bills. People were not clear about what exemptions were in which one and we wanted a little spacing in time,” Hendren said.

The Gravette senator added that debate for and against the tax break for military veterans has raised issues concerning the state’s overall tax policy. “(My) bill is not about closing exemptions, this one is done by using growth money and allowing for less growth in state government,” he said. “The other one does close some loopholes. So, we wanted to tackle this one first, and when we feel like we have the other well down the road – we will bring it out …”

Hendren also said that all state tax exemptions should be reviewed once the Blue Ribbon panel begins meeting, which is a part of his tax cut plan that received a “do pass” recommendation by the Senate Revenue and Tax Committee on Wednesday.

“That why I think a task force model is so important as we move forward because we are getting a small preview of what we are going to see,” Hendren said. “We have exemptions that are on the books that are over $100 million, and we are going to have some discussions about those. And when we do, we can expect some fierce political resistance because a lot of those were put in here because of a lot of influential people and special interests.”

Hendren continued: “It is going to be a long and sometimes contentious debate, but it is one that we’ve got to have.”