Bill to exempt state taxes on unemployment benefits one step from Governor’s signature

A state Senate bill that would exempt Arkansas residents from paying state income taxes on their unemployment benefits was passed in the House on Monday (Feb. 22) and is one step closer to Gov. Asa Hutchinson’s signature. SB236, co-sponsored in the House by State Rep. Joe Jett, R-Success, would save unemployed taxpayers $51 million this year, he said.

It passed with 92 yes votes, two no votes and three present votes. The bill was passed with an emergency clause. The primary bill sponsor is Sen. Jonathan Dismang, R-Beebe. SB236 returns to the Senate to concur in an amendment to include more sponsors and then will head to Hutchinson for consideration. A spokesperson for the governor said he will sign the bill.

Prior to the vote, several members expressed concerns that those who kept their jobs still have to pay the tax. Jett said he understood the concern, but the unemployment system doesn’t have a way for claimants to deduct state or federal taxes through the year, meaning they’ll have to pay a lump sum when they file their taxes.

It would be a bitter pill for many unemployed to have to swallow at a time when they are jobless, Jett said. The state representative noted the state has a $400 million budget surplus, and although the Department of Finance and Administration opposes the bill, it could have never anticipated this much potential windfall from an income tax on unemployment benefits.

“The way I see it … the state would be taking a windfall from these folks,” Jett said. “We’re all trying to find a balance. These people are struggling without jobs.”

In 2019, the state had 43,000 residents that received unemployment benefits totaling $98 million. After the pandemic ravaged the state, the numbers ballooned to 281,000 recipients in 2020. Those benefits cost $2.6 billion, according to figures released.

The income tax cut would apply to 2020 and 2021 state tax filings. It would sunset in 2022 and the normal tax rates would then apply. The state income tax reduction would not impact what filers owe in federal income taxes.

Another bill that would stop businesses from having to pay state taxes on loans and other payments through the federal COVID-19 relief programs was passed. HB1361 received 96 yes votes and only two present votes.

State Rep. Les Eaves, R-Searcy, said that Arkansas businesses received $3.3 billion in assistance from the federal government through the Paycheck Protection Program (PPP). The money had to be used for wages, medical insurance costs, and other costs directly related to keeping employees on payrolls.

Eaves noted the bill would conform to federal policy on PPP payments, and none of the state tax revenue that could potentially result from the program could be budgeted because it’s a one-time occurrence. He said it’s not a viable annual revenue stream, meaning any money collected could be put in the bank or it could be used on a specific construction project.

“Let’s leave this money in the hands of our small business owners,” Eaves said.

A medley of other bills passed through the House on Monday afternoon with virtually no opposition. HB1009 would allow school districts to give away food that’s not used. HB1010 would amend the sales and use tax exemption for sales of certain aircraft.

HB1049 will allow those receiving unemployment benefits to withhold state income sales tax. Currently, taxpayers cannot withhold state or federal income tax on unemployment benefits.

HB1317 would make theft of delivered goods a class D Felony. It was noted that many households are receiving more packages through the mail, and stealing these items is only currently a misdemeanor crime.

Other Senate bills voted upon by the House included SB172. The bill would limit the records and photographs from the state crime lab that defendants can have in their custody while incarcerated. It was noted that some of these materials are used as “trophies” by defendants who like to relive their crimes.

SB227 would direct the chair of the Arkansas Parole Board to “consult” with the Secretary of the Department of Corrections when performing his or her duties. The bill doesn’t give the Secretary the authority to change decisions rendered by the chair.

SENATE MOVES
In other legislative business, Senate President Pro Tempore Jimmy Hickey, R-Texarkana, had to make changes to two committees to conform with Senate rules in the wake of Sen. Jim Hendren’s departure from the GOP. Senate rules require that at least five members of the majority party must serve on each committee and a majority party member must chair the committee.

Hendren’s move to Independent status means he vacated his position as chair of the powerful Senate Insurance and Commerce committee. It also left the committee with only four Republicans on the panel – Sen. Jonathan Dismang, chair of the Joint Budget Committee; Sen. Missy Irvin, chair of the Senate Education Committee; Sen. Mat Pitsch, Majority Whip; and Hickey. The three Democrats include Sen. Larry Teague, D-Nashville, Sen. Joyce Elliott, D-Little Rock, and Sen. Keith Ingram, D-West Memphis.

According to Hickey, Hendren will move to Senate City, County and Local Affairs, and Sen. Kim Hammer, R-Benton, will move to Insurance and Commerce. That puts five Republicans on the panel. Pitsch, who is running for Treasurer of State, will now chair Senate Insurance and Commerce.