ISSUE 1 Sales Tax in Constitution – Awful Idea

ISSUE 1 will be on your ballot in the General Election. If passed, it will put a one-half percent (0.50%) sales tax for highways and roads in the Arkansas Constitution. Putting a sales tax in the Arkansas Constitution is always a bad idea.

The problem with putting a sales tax in the Arkansas Constitution is the lack of flexibility to address future needs. Two illustrations come to mind.

  1. Tax reformers were prevented from completely removing all state-imposed sales taxes on groceries because one of the state sales taxes is in the Arkansas Constitution.
  2. Voters in Faulkner County are now debating whether to redistribute revenue from a county sales tax because of a change in needs. Regardless of what the county voters decide, the flexibility to propose such a change is in stark contrast to the near impossibility of change under the permanent sales tax of ISSUE 1.

Putting a sales tax in the Constitution for highways means the tax cannot be redirected to more important needs in times of a financial crisis.  Once in the Constitution it will be almost impossible to change even if future policy shows it should be changed or repealed.

ILLUSTRATION 1: Existing sales tax in Constitution and problem addressing grocery tax

Sales taxes are normally passed by law where they can be revised or repealed as needed by the Arkansas General Assembly. But Arkansas also has a one-eighth percent (1/8 %) sales tax in the Constitution. The tax is divided up primarily between Game and Fish and Parks and Tourism, with a small portion going to two more state agencies.[i] This tax in the Constitution has already been a thorn in the side of tax reformers.

For many years legislators tried to remove all sales taxes from groceries but cities and counties did not want to lose the revenue they receive from taxing groceries.  Former Governor Mike Beebe came up with a plan to give as much tax relief as feasible without having to fight local governments. Beebe decided to tackle only the part of the grocery tax imposed by the state while leaving alone the grocery tax imposed by local governments. He accomplished his goal by chipping away at the state grocery tax a little at a time and setting up triggers to further reduce the tax on groceries even after he was out of office. He was able to remove all of the state-imposed sales tax on groceries except for the one eight percent tax because it is levied in the Constitution.

Public policy thwarted by a sales tax being in the Constitution is a deeply concerning example of the problem with putting a tax in the Constitution.  While ISSUE #1 exempts groceries the problem of a lack of flexibility still exists because of putting the tax in the Constitution.

ILLUSTRATION 2: Faulkner County’s ability to debate distribution of revenues

The Faulkner County Quorum Court found their Sheriff’s Department to be woefully underfunded.  Instead of proposing more tax, the quorum court proposed a change in the distribution of an existing tax.

Faulkner County has a one-half percent (0.50%) sales tax that provides equal funding for both county roads and the Sheriff’s Department. The Faulkner County Quorum Court decided to ask the people of the county to vote on changing the distribution of the tax so the part going for roads would be reduced from fifty percent (50%) to thirty-five percent (35%) with the difference going to the Sheriff’s Department. There is opposition to the quorum court’s proposal by several mayors and others.

No matter what Faulkner County voters decide on the issue, the point is… the quorum court had the ability to quickly propose changes they think are needed and that stands in stark contrast to the near impossibility of revising the ISSUE 1 tax once approved.

Let’s say ISSUE 1 passes and then in five or ten years from now the Arkansas legislature wants to change the purpose of the tax because of an immediate financial crisis far worse that that of the COVID-19 pandemic. With the tax being in the Constitution, it would take nearly two years before such a change could be accomplished. Why so long?  The legislature can only propose an amendment to the Constitution in a regular session of the legislature which occurs early in odd numbered years. The proposed amendment then must be approved by the voters in the general election which occurs in November of odd numbered years. This means the legislature would be powerless to redirect use of the tax to the greater needs of the immediate crisis.

In fact, once the ISSUE 1 tax goes in the Constitution it is unlikely it would ever be changed or repealed, even with changed circumstances.

TRYING TO ESCAPE BLAME IS ONLY REASON

Here is the most frustrating part of this saga.  The legislature could have passed a sales tax for highways and roads by law, instead of proposing one in the Constitution.  The vote required for passage was the same either way.

The only reason the legislature proposed a tax in the Constitution is because some legislators saw it as a way to pass the tax while trying to escape blame for the tax, since it would be voted on by the people. And for that reason we are facing the possibility of a sales tax going into the Constitution where it will never be changed even if Arkansas desperately needs the money elsewhere and where it will never be changed even if the people desperately need sales tax relief.

Also note the tax in ISSUE 1 will not go in effect until sometime in the year 2022. If the legislature really thinks they need this tax for highways, they can take responsibility and pass one by law in 2021 and accomplish the same thing without the problems caused by taxes in the Constitution.

ISSUE 1 will be on your ballot. Be informed and go vote.

VOTING IS EASY. Election Day is November 3, 2020 but you can early vote at your convenience beginning October 19, 2020.

The deadline to apply to register to vote is Monday, October 5, 2020


[i] Amendment 75 to the Arkansas Constitution

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