COVID-19 & TAX INCREASES LAST YEAR

We were asked by some readers to talk about the tax increases passed by the Arkansas legislature in 2019 and to explain what those taxes fund.  Some want to know if any of the tax increases can be shifted to other purposes, such as for responding to the COVID-19 emergency.

TAXES INCREASED IN 2019

First things first, if you want to know if your local legislator tends to be truthful or will BS you at every turn, just listen to how they talk about tax cuts and tax increases passed in 2019.  If your legislator only talks about the tax cuts and doesn’t acknowledge an overall increase in the Arkansas tax burden, then there is no reason to listen to him or her anymore.

Why? Because despite passing some tax cuts in 2019 the legislature increased your taxes more than they cut them.  This is not a guess on our part.  We used the state’s own numbers from the Department of Finance and Administration (DFA) and the Health Department. In the case of the internet sales tax, as we suspected, it turned out the DFA number was a lowball estimate of half or less than what they were collecting from taxpayers prior to the pandemic.

For further discussion on how much your taxes increased see these CFA articles: Net Tax Increase: New Tax Laws from the 92nd Arkansas General Assembly and Sen. John Cooper’s Tax Relief Claim Is FALSE

WAS MORE TAX GOOD OR BAD?

Politicians won’t say this out loud but we think it is likely several politicians are glad they increased taxes in 2019, in particular the internet sales tax, because prior to the pandemic the additional taxes helped the state build a record surplus budget. Once the pandemic caused the economy to drop, the surplus was used up as a cushion, but the shortfall was so bad even surplus money from previous years had to be used. If it had not been for the internet sales tax the state budget cuts would have been deeper.  Again, don’t expect the politicians to say this out loud.

On the other hand, we look at the increased tax burden as having taken even more money out of taxpayers’ pockets at a time when many taxpayers were going to need every dime to deal with unemployment and business slowdown.

When the legislature was passing more taxes last year Conduit was saying “reduce expenditures for nonessential programs instead of increasing taxes.”  But most politicians did not view any expenditure as non-essential.  A few months later with this horrible virus and economic slowdown, programs that had received full funding for nine months were suddenly cut off from funds for the remaining three months of the fiscal year because the programs were not as important they seemed to politicians a year ago.

LOOKING AT LAST YEAR’S TAX INCREASES

1. INTERNET SALES TAX ON YOUR ONLINE PURCHASES FROM OUT-OF-STATE SELLERS – Act 822 of 2019 (SB576)

The internet sales tax was sold as a tax on them bad old out-of-state sellers. Actually, it is 100% paid by purchasers in Arkansas.  For decades states were prohibited from imposing their sales tax on sales by out-of-state sellers that have no facilities in your state.  The United States Supreme Court changed its mind and allowed the tax.  Arkansas quickly jumped on the chance to tax you more.

The internet sales tax is not dedicated to a specific purpose and instead goes into Arkansas’ General Revenue Fund and is used for general purposes.  If you were hoping this might be additional untapped money that could be diverted to more important purposes, sorry; it already is being used in the general budget which has now been paired down to the most essential expenditures.

2. GAS AND DIESEL FUEL TAX INCREASE – Act 416 of 2019 (SB336)

This tax increase on gasoline and diesel fuel is collected as special revenues and deposited in the State Highway and Transportation Department Fund for use for highways and roads.  It would take a change in the law to redirect future collections of the tax to some other purpose.  Don’t expect that to happen because all gas and diesel fuel taxes will be down because of less travel and the Department of Transportation already wants more of your money.

3. TOBACCO PRODUCTS AND E-CIGARETTES TAX – Act 580 of 2019 (HB1565)

The new taxes on tobacco products and e-cigarettes are dedicated for a specific use and it would take passage of a new law to change how the taxes are used.  The money goes to a trust fund for the University of Arkansas for Medical Sciences to use to seek status as a National Cancer Institute-Designated Cancer Center.

4. CELL PHONE BILL TAX INCREASE – Act 660 of 2019 (HB1564)

The increase in cell phone taxes (called a fee) is used for funding a new 911 system using better technology. Legislation would be needed to change the use.

5. WATER BILL TAX INCREASE – Act 788 of 2019 (HB1737)

This tax increase (called a fee) is levied by public water systems to support the water system.  Legislation would be needed to change the use.

AND MORE TAX PROPOSED

To hear most politicians talk you would think they cut the Arkansas tax burden instead of increasing the burden and keeping Arkansas one of the most heavily taxed states in the nation. And, that doesn’t even include the one-half percent (0.50%) sales tax they proposed and put on your November ballot.

If that tax passes in November, can it be used to fight pandemics or other things? No. If passed the additional sales tax will go into the constitution where it will be nearly impossible to change and all the money from the one-half percent (0.50%) sales tax will go to highways and roads.