Elimination of ‘soda tax’ discussed in House Revenue and Tax committee

A controversial bill that would eliminate the state’s “soda tax” that funds the Arkansas Medicaid Trust Fund was discussed during the House Revenue and Tax committee on Tuesday (March 2), but a vote was not taken.

Committee Chairman Joe Jett, R-Success, said he wanted to let people know the details of the bill and allow discussions to take place during the coming weeks. A final vote on the bill will be held later.

HB1546, sponsored by State Rep. Lanny Fite, R-Benton, would eliminate the tax by the year 2026, and the funds it generates would be replaced by money from the state’s general revenue coffers. Fite told committee members he thinks the tax, approved by voters to fund Medicaid in 1994, hurts soft drink companies and other businesses that sell those drinks in the state.

“It’s discriminatory. It’s unnecessary,” he said.

The tax is levied on soft drink syrup or simple syrup at the rate of $1.26 per gallon, bottled soft drinks at the rate of 20.6¢ per gallon, and powders and base products at the rate of 20.6¢ per gallon that may be produced. Distributors, manufacturers, and wholesalers are required to collect the tax, according to the Arkansas Department of Finance and Administration.

It’s estimated that the tax generated $39.4 million in 2020, DF&A reported. Fite’s bill, which is supported by the Arkansas State Chamber of Commerce, would gradually phase out the tax starting in July 2022. That year, $4.1 million would have to be transferred from general funds to make up for the tax revenue loss. The amount balloons to $16 million in 2024 and $30.8 million the following year. Those figures are based on an accumulating rate. By 2026, the tax would cease and the money to keep the Trust Fund solvent would come from general revenue.

Several lawmakers, including State Rep. Julie Mayberry, R-Hensley, expressed concerns about removing a funding stream that was approved by voters. She said one constant in the legislature session-after-session is a reluctance by lawmakers from both parties to use general revenue as a permanent funding stream for targeted programs such as highway funding.

Mayberry noted the program already needs more money to operate more effectively, and a future legislature or governor may opt to not use general funds for Medicaid.

“It’s security for our weakest and most vulnerable,” she said.

Fite acknowledged a future legislature or governor could decide against funding the Medicaid Trust fund through general revenue. But, he said that could prove to be unpopular and doesn’t think it will happen. He said hypothetical arguments about what could happen in the future don’t address the current problems with the tax.

“We’d never cut any taxes … we don’t know what will happen tomorrow,” he said.

Several business owners argued for the bill, while several people in the medical professions argued against it. Jett didn’t set a specific date for the bill to be decided in committee.