Legislative panel culls list of tax exemptions for further study

A legislative task force on Thursday (May 10) compiled a working list of corporate and income tax exemptions that lawmakers will begin sifting through to decide if certain exclusions that reduce state revenue are justified, need to be changed, or nixed from Arkansas’ tax structure.

Among the key considerations taken up by the Arkansas Legislative Tax Reform and Relief Task Force are several similar proposals to further study cutting the corporate and individual income tax rates down to 5%. Arkansas collects a state corporate income tax at a maximum marginal tax rate of 6.5%, spread across six tax brackets. For individual income taxes, marginal brackets ranged from 0.9% on the low-end to 6.9% for the highest tax bracket.

Other recommendations on the list included a proposal for refundable earned income tax credit and to revisit the state’s capital gains legislation from the 2015 session that increased from 30% to 50% of gains, with a full tax exemption for earnings more than $10 million.

Some of the more obscure entries in the tax code that made the list were exemptions for political contributors and manufacturers of wind blades, a $10,000 income tax deduction for unreimbursed expenses for organ donors, and a “parsonage” tax break on the rental value of property furnished to clergy as part of their compensation package.

After receiving the long list of recommendations from fellow lawmakers, Sen. Jim Hendren, R-Gravette, co-chairman of the legislative panel, jested that the members of the bicameral committee did a decent job of proposing to review exemptions in unwieldly Arkansas tax code.

“Let me just say, you did a great job of consolidating the (exemptions) to four pages, so well done,” Hendren deadpanned, as the members of the panel and audience in the spacious “Big Mac” committee room laughed. “So in other words, we are going to have a significant amount – a lot of stuff – to do at our next meeting.”

That next meeting will be held May 23 and 24, where lawmakers will discuss and consider each of the exemptions before whittling down the list to an even smaller number that the full legislature could potential consider during the 2019 General Assembly.

At the end of April, the legislative panel began reviewing 43 sales tax exemption placed on the list for further consideration by the legislature heading into the 2019 regular session that begins in January. During the 2017 session, Arkansas lawmakers approved Gov. Asa Hutchinson’s tax reform package, which cut Arkansas’ income tax by $50 million and created the tax reform task force consisting of 16 legislators from the House and Senate.

Since their first meeting nearly a year ago, the task force has taken on the massive legislative mandate of identifying areas of potential tax reform and recommending further legislation. The panel is expected to provide a final report to Gov. Hutchinson by Sept. 1.

Rep. Lane Jean, R-Magnolia, Hendren’s co-chair on the task force, said he will soon visit with each member of the legislative panel to get a sense of the 43 sales tax exemptions that will land on the table for earnest consideration. Those proposals will be studied again in June before lawmakers come up with a final list.

“I am going to talk to the members of the task force and if we have the will to study it further, we will study if further. But if their will is not to do it …, we are not going to proceed on something that we don’t have the will of the 16 to move forward,” said Jean, also co-chairman of the influential Joint Legislative Committee.

During last month’s meeting, lawmakers also discussed a proposal to raise the state’s food tax to the full amount of the state sales tax. Since then, Gov. Hutchinson sent a letter to members of the task force to say he is opposed to raising the sales tax on groceries, which was first reduced in 2007 as part of Gov. Mike Beebe’s legislative package. The tax on groceries is now at 1.5% and will drop to 0.125% on Jan. 1, 2019.

“I have been a long-time and consistent support of eliminating the sales tax on groceries. In fact, the final reduction of the sales tax is part of the budget I presented to the legislature and was adopted by the General Assembly earlier this year. My position has not changed. I do not support raising the sales tax on groceries,” Hutchinson said a week ago.

Noting that he understands their work is not complete and they are months away from a final report, Gov. Hutchinson said the plan to eliminate the tax on groceries should continue.

“This exemption eases the financial burden on low-income Arkansans, seniors, and those who are on a limited budget. In my judgment, it is an exemption worthy of continuation,” the governor wrote.