Senate approves military tax exemption, governor’s tax cut nearly in place

As a gallery full of veterans and interested observers looked down on the Arkansas Senate floor, a controversial bill lawmakers say will lure military retirees to the state cleared a final hurdle on Tuesday (Jan. 31) and is expected to reach the governor’s desk and be enacted into law by week’s end.

Senate Bill 120, sponsored by Sen. Jane English, R-North Little Rock, was overwhelmingly approved following an hour-long debate that included some testy exchanges between senators who expressed disappointment over last-minute changes to the 34-page bill.

Sen. Missy Irvin, R-Mountain Home, touted SB120 as an economic development measure that would also allow the state to honor those military retirees and veterans who fought for the nation’s freedom.

“I don’t think any of us can deny the impact that the U.S. military has had on many of us,” Irvin said, as she talked about her father who served in secret missions during the Vietnam War.

Despite Irvin’s patriotic appeal, several senators went back-and-forth in lengthy debate about the complex method used to pay the $13 million tab to exempt all military retirement pay from state income tax. Sen. Linda Chesterfield, D-Little Rock, peppered Irvin with several questions about amendments added to the bill that she said amounted to hidden tax increases.

“I thought we were only supposed to deal with one issue at a time when we had legislation we wanted passed,” Chesterfield said. “Why are we putting all this other stuff in this bill?”

Last week, Sen. Jake Files, R-Fort Smith, and other lawmakers pulled down earlier versions of the military tax break legislation and introduced several amendments to the first proposal outlined by Gov. Asa Hutchinson in early December.

That plan 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. It also removed the exclusion from income on unemployment benefits, creating about $3.1 million in additional generation revenue.

The amended bill introduced last week to a House panel keeps the manufactured housing levy as-is and applies the full tax on specified digital downloads and soft drinks and candy at a cost of $3.1 million. The most controversial part of the revised bill included a last-minute measure to lower the current “syrup” tax on soft drink ingredients sold by wholesalers at a cost of $13.4 million.

Speaking in the support of the bill, Sen. Jim Hendren, R-Gravette, brought a bit of passion and humor to the Senate floor when he referenced a letter sent to several senators on Monday from Americans for Tax Reform (ATR), urging them not to vote for the bill. The influential Washington, D.C.-based tax policy group, headed by conservative political activist Grover Norquist, opposes tax increase of any kind.

“[This] is no tax increase, and I don’t care if Grover Norquist says it is or not. I don’t work for him,” Hendren said to applause and cheers from the gallery. “The idea that this guy from Washington, D.C. — who has for 5 years used the military as a tool to drag down domestic spending by putting the Department of Defense on sequestration and basically gut our military – wants to come down here and get in the middle of our discussion.”

“I’d like to tell Grover Norquist where to put his press release,” Hendren added, then asked out loud if he sounded like his father, Rep. Kim Hendren, R-Gravette. The elder Hendren, who has served in the legislature nearly 40 years, is well-known for making colorful speeches on the House floor.

Sen. Alan Clark, R-Hot Springs, brought the Senate chamber back to serious note by asking the sponsors if the bill would pay for itself, as several lawmakers have testified in House and Senate committee hearings. “There is no evidence that it does,” he said.

In the end, Clark and others who spoke against the bill were clearly overmatched by sponsors who had the full backing of the governor and a legislature that has filed several measures aiding members of the military and their families.

On Monday, the House version of the military tax exemption was approved by a vote of 75 yeas and 14 nays. There were two legislators not voting and eight lawmakers that voted present. Out of the 35 Senate members, 30 members voted “yea” and none voted against the bill.

Clark and Sens. Linda Collins-Smith, R-Pocahontas and Scott Flippo, R-Bull Shoals, all voted present along with Sen. Stephanie Flowers, D-Pine Bluff, who presided over the Senate hearing in place of Lt. Gov. Tim Griffin.

On Friday, the Senate unanimously approved HB1159, the first plank of the governor’s tax cut plan that provides tax cuts to Arkansas wage earners making less than $21,000 a year. The bill also sets in motion plans for the blue ribbon panel mentioned by Collins that will study ways to overhaul the state’s tax code. The Senate version of the bill, SB115, was approved by the House on yesterday.

Gov. Asa Hutchinson plans to sign both bills tomorrow at a ceremony in the Governor’s Conference Room. The governor said the $50 million tax cut will benefit more than 600,000 lower-income Arkansans and build upon his earlier $100 million tax cut for the middle class in 2015.

INCENTIVES TO BRING NONPROFITS TO STATE REPEALED
Earlier in the day, the Senate Agriculture, Forestry and Economic Development Committee voted unanimously to repeal the Nonprofit Incentive Act of 2005. SB160 sponsor, Sen. David Wallace, R-Leachville, said occasionally the legislature passes laws with “good intentions” that end up not working out.

“Sometimes we make bills with best of interests and we find out later that a problem doesn’t exist and doesn’t fix anything,” Wallace told the Senate panel. “In this case, this (legislation) has never been utilized as it was designed to help bring nonprofits to Arkansas.”

Scott Hardin, spokesman for the Arkansas Economic Development Commission, told Talk Business & Politics that state economic development officials support Wallace’s legislation. “AEDC is recommending the repeal of the Nonprofit Act as it has never been (used) not even once,” Hardin said.