Governor signs tax cuts into law

Gov. Sarah Sanders and the Arkansas legislature made short work of a special session to cut the state’s personal and corporate income tax rates. The three-day session started Monday (May 4) and concluded Wednesday (May 6) with Sanders signing HB1001 and SB1 into law.

The identical bills lower Arkansas’ top personal income tax rate from 3.9% to 3.7% and the state’s top corporate tax rate from 4.3% to 4.1%. The tax cuts are retroactive to the first of January 2026.

Overall, the fiscal impact to the state is $191.8 million in the next fiscal year and $144.8 million in the following year. The individual income tax reduction will slice $163.5 million from the estimated budget for the next fiscal year, according to an analysis by the Arkansas Department of Finance and Adminstration.

Approximately $15.6 million would be reduced from state revenues from the personal income tax cut for pass-through entities – a business structure such as a sole proprietorship where business income flows through to an individual who pays taxes on income received.

The corporate tax cut would result in an estimated $12.7 million less in the collections.

Approximately 1.1 million individual income taxpayers with net taxable income $26,400 and above would receive a tax reduction, DFA said. All electing pass-through entities would receive a tax reduction. Approximately 7,800 corporations with net taxable income greater than $11,000 would receive a tax reduction.

“We know you [Arkansans] are going to spend this money much better than the government ever could,” said Sanders.

With strong Republican supermajorities in the House and Senate, legislators have been cutting taxes for more than a decade. Gov. Asa Hutchinson started the reductions by cutting the state’s top personal income tax rate from 7%.

Sanders has presided over four income tax cuts.

In the most recent fiscal session, state lawmakers also increased the Homestead Tax Credit from $600 to $675 for homeowners.