Arkansas tax reform efforts move forward, two firms submit bids for consulting work

The state’s newly formed Blue Ribbon tax task force heard some new, old and repackaged ideas Tuesday (July 11) on ways to revamp the state’s complex tax code, but no real consensus emerged on how that might occur.

However, the Arkansas Tax Reform and Relief Task Force did receive two bids from a North Little Rock firm and an East Coast consultant to help lawmakers come up with a plan to modernize and simplify the state tax code, while making it fairer for all taxpayers.

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 toward reforming the state tax code by the 2019 regular session.

At the end of Tuesday’s all-day meeting, PFM Group Consulting LLC of Philadelphia and WC Mitchell & Associates Inc. of North Little Rock submitted bids by the end of day deadline, according to the state Bureau of Legislative Research.

Earlier at the meeting, top officials with Arkansas Advocates for Children and Families (AACF) gave a 45-minute presentation concerning the impact of Arkansas’ tax code on the working poor and lower-income taxpayers. AACF Executive Director Rich Huddleston told the legislative panel that although the state is likely to focus on overhauling the state tax code to make Arkansas more competitive for jobs and economic development projects with surrounding states, he hopes the committee would also consider issues of tax fairness involving the state’s lower wage workers and taxpayers.

“Even though we had three rounds of tax cuts from 2013, 2015 and 2017 that are now nearing a combined impact of $300 million in terms of their revenue impact on state budget, but what is the role of taxes relative to the other factors in the state’s economic competitiveness,” he said.

Following Huddleston’s presentation, AACF Senior Policy Analyst Eleanor Wheeler made a pitch for lawmakers to take another look at creating a state-based Earned Income Tax Credit program as a tool to modernize the state’s tax code. During the recent legislative session, AACF supported House Bill 1161 pushed by Rep. Warwick Sabin, D-Little Rock. That bill was rejected by lawmakers as an alternative to Gov. Asa Hutchinson’s larger $50.5 million tax cut proposal for the state’s lowest income wage earners.

Similar to debate in the House Revenue and Taxation committee during the general session, Wheeler and Huddleston were quizzed by several lawmakers with concerns expressed by several conservative tax groups that say the federal EITC program is rife with fraud and would redistribute wealth to non-working taxpayers in the form of a subsidized tax refund. Wheeler downplayed those concerns, saying the EITC program has bipartisan support at the state and federal program and was championed by former U.S. President Ronald Reagan.

“It can be a great tool in improving our state’s competitiveness because it is such a great pro-work, anti-poverty program,” Wheeler said.

Following AACF’s presentation, two out-of-state tax consultants also appeared before the legislative panel. Douglas Lindholm, executive director of the Council on State Taxation (COST), made the case to the 16-member committee that the business tax burden in Arkansas was too high, saying the state should eliminate its tax on warehouse inventory and simplify the process for property tax abatements for machinery and equipment at manufacturing plants.

Lindholm also said members of his trade group, which represents many of the nation’s Fortune 1,000 companies, support full participation of states in the Streamlined Sales Tax agreement, which allows states to collect sales and use taxes from remote sellers that do not have a physical location inside state boundaries. Arkansas joined the Streamline Sales Tax pact in 2008 and is one of 23 states that has membership in the group.

In the afternoon session, Kathleen Quinn, research analyst for the National Conference of State Legislatures, provided an overview of state tax structures in surrounding states.

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 he hopes the legislative group takes plenty of time to dive deep into the state’s tax code before moving forward with recommending any major changes.

“I applaud them for researching the (tax code) in depth and looking at it very deeply and thoroughly before they start making recommendations and designing a plan,” Hutchinson told reporters at the Little Rock Rotary Club meeting at the Clinton Presidential Library.

“At the appropriate time, I can weigh in but I don’t want to get ahead of the game. They need to do their work and their due diligence and that’s what they want to do, and I want to give them plenty of opportunity to do that and there will be a time down the road that I can provide more specific points to them, but the time is not right yet.”