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DFA Legislative Package Report 2021

The Arkansas Department of Finance and Administration (DFA–state’s version of the IRS) has released a “package” of proposed legislation to be heard by the 93rd General Assembly during its 2021 General Session. The bills are HB1030 – HB1050 filed by the House Chairman of the Revenue and Tax Committee, Representative Joe Jett.  Conduit for Action recognizes the public importance of state tax legislation and is providing this special DFA Legislative Package Report to help analyze these bills.  CFA will give each bill a Support, Oppose, or No Position designation.  Several of these bills are still awaiting their individual fiscal impact statement, giving the state’s “best guess” revenue impact on taxpayers.

 

CAVEAT:  DFA TESTIMONY REGARDING BILLS.

In the 2019 General Session a DFA package of bills was also put forward.  Some of those bills were rejected for going too far—such as turning over delinquent taxpayers to third party collection agencies.  The Chair of the Senate Revenue and Tax Committee “called out” the DFA for misleading his Committee.   DFA had advised the Committee that some bills were only “minor” changes while facts proved the bills to be of major impact to taxpayers.

One of the best examples of unreliable information from DFA regarding the impact of bills was their April 2019 projection regarding the proposed Internet Sales Tax.  During DFA testimony, they projected that the total annual collection of internet sales tax would be $32.4 Million (a number much lower than prior predictions[1].)  The results one year later speak for themselves, even in this year of a world-wide pandemic.  Sales tax collections far exceed predictions.[2]

In answer to a FOIA request for information regarding the specific revenue coming to AR from the new internet sales taxes which started July 1, 2019, DFA responded that such information was not available. (For a state interested in collecting and maintaining a fair tax system, such details are a must.  It would be beneficial to AR taxpayers for such information to be obtained from DFA by our Legislature.)

With this history, the 93rd General Assembly should give a close look at each bill and discuss their impact with those outside of state government who are familiar with the consequences of changes to Arkansas state tax and revenue law.

DFA Legislative Package Summary of CFA Bill Analysis (see Details below):

OPPOSE

HB1030 – Ensuring Increases in Gas Tax RevenueOPPOSE

HB1034 – DFA Disclosing of Confidential Tax Records in Certain CircumstancesOPPOSE

HB1038 – Internet Sales Tax on Delivery ChargesOPPOSE

HB1045 – Defines Cigarette Paper to Include Vaping and Marijuana UseOPPOSE

 

SUPPORT (None)

 

NO POSITION

HB1031 – Requiring Electronic Filing of State Income Tax Returns if Federal Return Filed Electronically – NO POSITION

HB1032 – Full Exemption for Military Retiree Income Exemption – NO POSITION

HB1033 – Clarify Exemption of Sale of Car Wash, Use of Digital Magazine Language – NO POSITION

HB1035 – Updating the Year in Tax Law – NO POSITION

HB1037 – Posting of Bond for Delinquent Accounts – NO POSITION

HB1039 – Out of State Employers Required to Withhold In State Employees Income Taxes – NO POSITION

HB1040 – Defines “Vessel” for Sales Tax Exemption – NO POSITION

HB1041 – Allows Waiving Interest and Penalty Fees in Certain Circumstances – NO POSITION

HB1042 – Repeal of Long-Term Rental Vehicle Tax (that is expired) – NO POSITION

HB1043 – Taxes and Penalties After 10 Years are Uncollectable – NO POSITION

HB1044 – Authorizes DFA to Estimate Tax Due – NO POSITION

HB1046 – Allowing DFA to Revise Decisions – NO POSITION

HB1047 – Agents for Taxpayers must have POA Form – NO POSITION

HB1048 – Authorizing Offset of Tax Refund If Final Delinquency Assessment Issued – NO POSITION

HB1049 – To Allow Withholding of Taxes from Unemployment – NO POSITION

HB1050 – Reducing Number of Employees for Annual Withholding Tax Statements Filed Electronically – NO POSITION

Bill Details
HB1030 – Ensuring Increases in Gas Tax RevenueOPPOSE

This bill would use a new calculation to ensure that gas tax revenues are calculated to always be increasing rather than decreasing.  Specifically, if the wholesale price of gas goes down, the tax multiplied by that lower amount would be ignored and, in its place, would be the higher amount from the year before or the highest amount from 2018 to the date of calculation, whichever is higher. This new method of calculation will ensure that gas taxes are maxed out and likely always increasing rather than rising and falling with the wholesale price of gasoline. This would mean no chance of lower tax prices at the pump and ensure Arkansans keep paying higher and higher gas taxes each year.

 

HB1031 – Requiring Electronic Filing of State Income Tax Returns if Federal Return Filed Electronically – NO POSITION

This bill requires that those who file federal tax returns electronically would be required to also file any state income tax returns electronically and not have the option of a paper filing. According to DFA, it is estimated this change would result in about 110,000 more returns filed electronically rather than on paper.

 

HB1032 – Full Exemption for Military Retiree Income Exemption – NO POSITION

This bill would allow those claiming less than $6,000 in military retiree income but income from non-military sources to take the full $6,000 exemption by combining that non-military income to reach the $6,000 total exemption. For example, if a person receives $3,000 in military retiree income, and $3,000 in non-military income then they may only take the $3,000 exemption. DFA estimates this would result in a reduction of $34,000 in FY2022 then $68,000 in FY2023 effecting 700-800 taxpayers in Arkansas.

 

HB1033 – Clarify Exemption of Sale of Car Wash, Use of Digital Magazine Language – NO POSITION

This bill removes references of a “digital magazine” in the Arkansas code as that definition is no longer used but instead “digital code” is used to capture digital products. Additionally, the bill clarifies that a sale of a car wash is tangible personal property that is not subject to sales tax in Arkansas.

 

HB1034 – DFA Disclosing of Confidential Tax Records in Certain CircumstancesOPPOSE

DFA is currently limited in what confidential tax information they can share without a subpoena for those records. This bill would open that up and allow them to disclose records to the Attorney General or a prosecutor without a subpoena. It would also allow disclosure in administrative hearings under the Arkansas Taxpayer Procedure Act and when the DFA Secretary is a party to a lawsuit. It would allow disclosure of information in bankruptcy proceedings, corporate dissolution, and other similar proceedings when DFA is a party. It will allow them to share information with the Department of Workforce Services towards eligibility for pandemic unemployment assistance. The bill also makes the DFA Secretary as the official custodian of records for the department of motor vehicles driver services.

 

HB1035 – Updating the Year in Tax Law – NO POSITION

This bill updates years in state code from 2018 to 2020 to adhere to the latest IRS laws.

 

HB1036 – N/A—As not part of DFA legislative package

 

HB1037 – Posting of Bond for Delinquent Accounts – NO POSITION

This bill would require a taxpayer that owes delinquent taxes to post a bond to remain in place until the delinquent taxes are paid off.  The bill also gives authority for DFA to promulgate rules to implement this change.

 

HB1038 – Internet Sales Tax on Delivery ChargesOPPOSE

This bill would make marketplace facilitators (MF) responsible for including the “delivery charges” in the total price on which sales tax is collected and remitted to AR.  This is an expansion of the internet sales tax passed in 2019 which only required remote “sellers” to collect the tax on delivery charges.   A warning to legislators is to ignore the title “To Clarify” which is always a red herring in bill reading.  This implies a “clean-up bill.”  Do not be fooled.  If passed, this would be a new tax—otherwise, its passage would not be needed.   DFA estimates their bill will not produce additional revenue.  If passed, it will certainly mean additional revenue coming into the state from those MF who are not including delivery charges as part of the total sales price for calculating internet sales taxes owed.  This means a tax increase (more taxes going to government) for Arkansans and their internet purchases.

 

HB1039 – Out of State Employers Required to Withhold in State Employees Income Taxes – NO POSITION

This bill would require an out of state employer who has in-state employees to be sure they are withholding and remitting their income taxes for that employee. This would align the requirements that in-state employers must follow for in-state employees. With the rise of remote workers these situations will likely become more common and ensuring equal tax treatment seems to be the aim here. Since the employee owes the income tax anyway for working in Arkansas it will just make it easier on them for the business to withhold and remit on their behalf.

 

 

 

HB1040 – Defines “Vessel” for Sales Tax Exemption – NO POSITION

This bill would define a vessel for those that are exempt from sales tax. The definition would be “a motor-driven watercraft used for commercial purposes to transport tangible property or persons on the rivers, lakes, or navigable streams of the state.”

 

HB1041 – Allows Waiving Interest and Penalty Fees in Certain Circumstances – NO POSITION

This bill allows DFA to waive penalty fees and interest in certain circumstances. These include if the taxpayer’s failure to pay the tax is satisfactorily explained, if the failure is a mistake by the taxpayer of either the law or facts subjecting them to such tax, or the inability to pay the interest or penalty due to bankruptcy. The bill also allows waiving of filing fees incurred for filing a certificate of indebtedness.

 

HB1042 – Repeal of Long-Term Rental Vehicle Tax (that is expired) – NO POSITION

This bill repeals the long-term rental vehicle tax. The tax expired in 2015 but is still in the legislative code.

 

HB1043 – Taxes and Penalties After 10 Years are Uncollectable – NO POSITION

This bill goes along with HB1041. The bill makes it state law that any taxes and penalties that are not collected after 10 years are deemed uncollectable and are waived by the state IRS. This bill allows DFA to waive penalty fees and interest in certain circumstances. These include if the taxpayer’s failure to pay the tax is satisfactorily explained, if the failure is a mistake by the taxpayer of either the law or facts subjecting them to such tax, or the inability to pay the interest or penalty due to bankruptcy. The bill also allows waiving of filing fees incurred for filing a certificate of indebtedness.

 

HB1044 – Authorizes DFA to Estimate Tax Due – NO POSITION

This bill allows DFA to issue an estimated assessment of tax when a person fails to provide records to DFA for them to calculate the actual assessment of tax due. The burden of refuting the estimated assessment then shifts to the taxpayer and simply providing the information will not shift the burden to the state but providing records after the estimate is assessed may be used to calculate the actual taxes due.

 

HB1045 – Defines Cigarette Paper to Include Vaping and Marijuana Use – OPPOSE

This bill defines the term “cigarette paper” for purposes of assessing the excise tax on cigarette and other products.  It includes a definition that may include vaping and marijuana products[3] as well.  One of the definitions of cigarette paper used in this bill includes paper-like products that “by advertising, design, or use, facilitates the use of tobacco or other substances of inhalation”.  This appears to incorporate vaping and marijuana products into the definition of cigarette paper since these are not specifically or clearly taxed like cigarette and tobacco products under current law.  This is likely a major tax increase as more people have moved to vaping products instead of traditional cigarettes; and marijuana use continues to expand as well.

 

HB1046 – Allowing DFA to Revise Decisions – NO POSITION

This bill clarifies that legal counsel for the Secretary of the Department of Finance and Administration (DFA) may request that a decision issued by a hearing officer of the Office of Hearings and Appeals be revised by the Secretary of DFA, regardless of whether the proposed assessment or denial of a claim for refund is sustained in whole or in part.

HB1047 – Agents for Taxpayers must have POA Form – NO POSITION

This bill would require an authorized representative of a taxpayer to produce a properly-executed power of attorney in order to file a written protest of tax assessment or denial of refund with the state IRS on behalf of a taxpayer.

HB1048 – Authorizing Offset of Tax Refund If Final Delinquency Assessment Issued – NO POSITION

This bill will allow the state to offset a person’s tax refund if they have a tax delinquency final delinquency assessment issued against them. Currently this is only allowed if a tax lien or certificate of indebtedness has been issued.

 

HB1049 – To Allow Withholding of Taxes from Unemployment – NO POSITION

The bill would require the Department of Commerce and DFA to work together to create a form that people can use to choose to have their taxes on unemployment compensation withheld from their checks rather than having to pay a lump sum the following year. It would be voluntary if a person chooses to have their taxes withheld.

 

HB1050 – Reducing Number of Employees for Annual Withholding Tax Statements Filed Electronically – NO POSITION

This bill will reduce the number of employees required to mandate electronic filing of annual withholding tax statements from 250 employees to 25 employees. It is estimated that 3,876 employers would fit into this category who currently file on paper, who would have to file electronically.

 

[1] See https://www.arkansasonline.com/news/2019/jun/30/internet-sellers-set-to-collect-sales-t/

[2] See https://talkbusiness.net/2020/07/arkansas-ends-fiscal-year-2020-with-better-than-expected-revenue-of-369-4-million/#:~:text=Fiscal%20year%20sales%20and%20use,or%2011.1%25%2C%20above%20forecast.

“The [state] fiscal year ended June 2020 with $369.4 million in net available revenue more than expected.  (emphasis added)“Fiscal year sales and use tax revenue was $2.543 billion, up 3.2% compared with fiscal year 2019 and 1.2% above the [adjusted] forecast. …  “For the month of June 2020 alone, (emphasis added) sales and use tax revenue was $227.4 million, 8.8% above revenue in June 2019 and 11.5% above the adjusted forecast.”

WEEK 1 LEGISLATIVE REPORT

[3] See https://www.ark.org/dfa-act896/index.php/api/document/download/20170831.pdf

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