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The Arkansas Tax Task Force met again Wednesday to discuss the impact of proposed tax reform from their report they issued last month. A presentation from the Tax Foundation’s Nicole Kaeding revealed that Arkansas had fallen 3 spots to 46th overall on the business tax climate index. That places Arkansas in the bottom five in the country and last among Republican states. The only states Arkansas beat on the index were Connecticut, New York, California, and New Jersey.

Kaeding did emphasize that the reforms that the tax task force is currently proposing is not reflected in those numbers and, if passed, would be reflected next year. Kaeding analyzed the current proposals for tax reform from the tax task force’s report issues last month. Under “Option A” the drop individual income tax down to a top rate of 6.0%. Under the “DFA” plan the top rate would drop down to 6.5% then to 5.9% under a phased in plan. Applying those two plans to the business tax index, Arkansas would move back up to 43rd overall under the DFA plan and 45th overall under the Option A plan.

The Department of Finance and Administration also presented on the impact of repealing the “throwback rule” versus just reapportioning  the rate/factor. This applies to businesses with locations in multiple states to capture the income tax they owe to avoid “nowhere” tax owed. Joel DiPippa of DFA stated that all taxpayers would benefit by repealing the throwback rule outright, but that just changing the apportionment formula would result in some “winners and losers” on their tax liability.

In the afternoon session the task force heard more from Nicole Kaeding from the tax foundation. She presented on “packages” of proposed reforms in the task force’s report and how passing those would improve the business climate index for Arkansas. Under the largest tax cut (of over $250 million) Arkansas would improve from 46th to 42nd on the Tax Foundation’s business tax climate index. Fielding questions on why no huge changes, Kaeding pointed to the lack of reform proposed regarding sales taxes. Discussion on tax triggers versus phased in tax cuts were also discussed with Kaeding and DFA officials. She commented “you are kinda nibbling around the edges.”

The afternoon session did draw a quote from task force co-chair Lane Jean that drew interest. Jean stated “We do not know the increase in Medicaid will be, but it will likely be substantial. If we do not have savings in government somewhere down the line . . . I don’t see how we could do this.” This seemed to underscore some possible concern on large tax cuts and their impact on state budgets.

Senator Alan Clark presented first at the tax task force on his proposed legislation for eliminating sales tax paid on items that are donated. He spoke about how under the current law it would be more beneficial for him to take unused inventory to the landfill rather than donate it to local charities because he would then have to pay the sales tax on the value of that donation. Clark commented that he had been trying to pass this for 6 years. The most recent estimated revenue impact would be a loss of around $1.6 million to the state.j

The Tax Task Force will meet again tomorrow and will be discussing tax credits.

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