Blue Ribbon tax reform panel holds first meeting, hopes to overhaul Arkansas tax code

The newly-formed Arkansas Tax Reform and Relief Legislative Task Force held its first organizational meeting on Monday at the State Capitol, setting the groundwork to take on the mammoth task of overhauling the state’s complex tax code.

Sen. Jim Hendren, R-Gravette, one of two co-chairs elected to lead the panel, said it is his hope that the legislative task force will look at every aspect of the state’s complex tax structure from “top to bottom,” and find consensus on major areas of reform.

“We have an obligation to issue a report by the end of this year, which is not too far away,” Hendren said. “Our goal is to prepare legislative recommendations for the next General Assembly in regards to the tax code, and potentially prior to that if we come to an agreement on some things that could be taken.”

Earlier this month, Senate President Jonathan Dismang and Speaker of the House Jeremy Gillam named their selections to the 16-member group tasked with modernizing and simplifying the Arkansas tax code, while making it fairer for all taxpayers.

Rep. Lane Jean, R-Magnolia, who was selected by his peers to co-chair the panel with Hendren, said he was pleased that the group is made up of members from both parties and representatives from every part of the state.

“I think what we’ve got to do, our charge, is that we get a consensus out of this committee and we look throughout the state … to be fair on taxation. That’s my charge and I know Sen. Hendren feels the same way,” said Jean, also co-chair of the Joint Budget Committee. “I look forward to the next year on trying to come up with something that will help Arkansas grow its economy.”

The task force was created as a result of Acts 78 and 79 of 2017, which called for a review in addition to cutting nearly $50.5 million in taxes to low-income residents. The panel plans to meet for the next year or longer to review Arkansas’ tax policies with a goal towards reforming the state tax code by the 2019 regular session.

Gov. Asa Hutchinson, who set out the parameters for the tax reform panel at the beginning of the 2017 regular session in January, told Talk Business & Politics last week that he hopes the legislative group can quicken the pace of overhauling the state’s tax code that began in his first term with tax cuts for the state’s middle-income tax bracket.

“If you try to lower the income tax rate based upon normal economic growth, it takes a long time. It’ll take some time to do that. You just have to take a gradual approach to it. You have to be very careful that you don’t cut taxes too far. That jeopardizes the state budget,” he cautioned. “However, there’s broader reform that you can accomplish and accelerate the lowering of the income tax rate, but those are politically difficult challenges, and that’s why I’m very anxious to see what kind of recommendations they come out with.”

After today’s brief organizational meeting, Hendren reiterated views he expressed during the recent legislative session that the task force will examine all exemptions currently on the books. Those exemptions include agricultural products, motor fuel, food, equipment, manufacturing, nonprofit, charitable and religious tax reductions or eliminations.

“I think it is better that we gather all the facts before we make any decisions, particularly when it may be a decision that will have a $7 million impact … that will change the income tax structure,” Hendren told reporters. “That’s why we said (during the session) that we ought to take some time studying it and see what is the best path forward because these are very, very expensive decisions.”

Hendren, with Jean at his side nodding in agreement, said he has already received calls from lobbyists and trade groups pushing back against removing certain exemptions that affect their constituents or industry. Although he would not reveal any names, Hendren said he expects heated discussions on what exemptions to keep or remove before the panel files its first preliminary report at the end of 2017.

“I fully expect those groups to try and protect their exemptions, that’s what they are supposed to do,” said the Northwest Arkansas senator.

Earlier this week in an interview with Talk Business & Politics, Arkansas Farm Bureau President Randy Veach said his organization will fight to hold onto a sizable portfolio of tax exemptions that benefit the state’s $20 billion-a-year agriculture industry.

“Since 2013, net farm income has dropped 60%. And so, we’re looking at all of this as kind of a perfect storm for agriculture. So those exemptions are extremely important to us to keep the largest industry in our state going,” Veach said.

State Chamber of Commerce/Associated Industries of Arkansas President and CEO Randy Zook, whose group represents hundreds of small and large businesses across the state, said the convening of the task force is a good first step forward toward simplifying the state’s code and making Arkansas businesses more competitive with surrounding states.

Zook, who attended Monday’s meeting with his legislative staff, said the State Chamber will likely make a presentation before the task force at a future meeting, but said his organization will take a wait-and-see approach before backing any key recommendations that could become actual tax policy. In the past, Zook has maintained that Arkansas businesses face a daunting array of national, state and policies that make the tax code hard to navigate.

Under Act 78 that created the legislative task force, the Blue Ribbon panel must file its first written preliminary report on the group’s activities, findings and recommendations by Dec. 1, 2017. A final written reform must be presented to the governor, House Speaker and Senate President on or before Sept. 1, 2018. The task force’s commission will expire at the end of 2018.

The next meeting of the Blue Ribbon tax reform panel will take place on June 7 at the State Capitol, where Hendren has asked the state Bureau of Legislative Research to provide lawmakers with an overview of the state’s tax code. Lawmakers also outlined some details on citizen participation at scheduled meetings, but left open rules on public testimony before the panel.

Besides selecting co-chairs for the panel, lawmakers also adopted preliminary rules and procedures for the meetings, and authorized a measure giving Jean and Hendren the green light to approve special per diem expenses for task force members traveling to Little Rock.