A bill that would index the state’s standard tax deduction to correlate to inflation was introduced Tuesday (Feb. 2) in the House Tax and Revenue Committee meeting. HB1190 was proposed by State Rep. David Ray, R-Maumelle.
State tax brackets are already tied to inflation, and it only makes sense to do the same with the standard deduction, he said. If passed, the bill would impact about 630,000 taxpayers, mostly low- to middle-income earners, according to the Arkansas Department of Finance and Administration.
“Inflation acts as a stealth tax increase,” Ray said.
During the last six years the deduction, if tied to inflation, would have risen from about $2,200 to $2,230, according to DF&A. It would lead to a $900,000 drop in annual state revenue.
Indexing is recognized as a “best practice” by the federal government, Ray added. One advantage of this bill is that it impacts a broad number of residents whereas most bills only impact a targeted group or industry.
Arkansas is one of 10 states that does not correlate its standard deduction to inflation.
Another bill that was discussed Tuesday would amend sales tax laws special events that pertain to public school fundraisers. HB 1023 specifically targets a problem that at least one public charter school, Maumelle Charter School, had a few years ago, State Rep. Mark Lowery, R-Maumelle, said.
The school’s Parent-Teacher Organization planned to host a fundraiser to buy equipment and supplies for the school, but was contacted by DF&A and told they would have to collect and turnover state sales tax on items that were sold.
PTO’s and other non-profits have exemptions in the state sales tax laws, but anything deemed a special event does not. At one point during a discussion of the bill, the conversation turned on the fact that “5th graders were making and selling cookies” and the state was expecting them to record and collect sales taxes.
“I submit that this is ridiculous,” State Rep. Jim Wooten, R-Beebe, said of the tax collection.
DF&A claimed if this bill was passed it would cost the state up to $350,000 in lost revenues.
House Tax and Revenue Committee Chairman Joe Jett, R-Success, told members of the committee at the close of the presentation that the committee would find a way to fix this problem, one way or another.
No other bills were brought up for consideration during Tuesday’s session.