Rep. Howard Beaty Jr. (R – Crossett) filed the best pro-business bill of this year and likely the best since Republicans became the majority in the legislature in 2012. His HB1817 helps businesses of all sizes grow through better business depreciation tax rules. Arkansas income tax law on business depreciation is more restrictive than the IRS rules and therefore have been a hinderance to business. HB1817 would mirror IRS Sections 168 & 179 on depreciation and thus reduce Arkansas’ Income Tax on business investments.
Based on political party platforms it is unlikely Democrats in the Arkansas Legislature will support HB1817 but Republicans will support it. Democrats tend to favor higher burdens on business but Republican’s favor policies encouraging economic growth. Not all Republicans in the Legislature can be counted on because some do not follow the Republican platform. The question will be how many R’s will join the Democrats.
Sections 168 & 179 State Depreciation to Adopt Federal Tax Law
HB1737 changes the state depreciation laws to add bonus depreciation through 2026 and permanently increases Section 179 depreciation to be identical to federal depreciation laws. The federal tax codes adopted are those in place as of January 1, 2021.
Adding bonus depreciation will allow any size business to deduct the full cost of equipment (new and used) during its first year in use for the tax year 2022, with the allowed depreciation rate for new purchases decreasing 20% each year until it goes to zero in 2027. Adopting the federal Section 179 depreciation will allow Arkansas companies of all sizes to permanently increase their current AR Section 179 depreciation from $25,000 to $1,050,000 (which is adjusted annually for inflation.)
If passed, HB1817 means:
- A tax cut for all businesses which invest their own money back into their company;
- Opportunity for job growth;
- Attracting more businesses to Arkansas;
- Increase in capital investments in Arkansas by private enterprise;
- Avoids government picking winners and losers through special tax incentives;
- Sends a strong message to all businesses in Arkansas–“We want more of what you have to offer!”
During the 2018 work of the Arkansas Tax Reform and Relief Legislative Tax Force, the effects of adoption of federal depreciation schedules was studied. Their report may be viewed in Proposal #22. The adoption of many of the recommendations of the 2018 tax task force have produced a large revenue surplus in Arkansas which more than pays for the passage of this pro-business bill.
HB1817 was filed on March 19th and at this writing has yet to be scheduled for a hearing before the House Committee on Revenue and Taxation.
With Republicans having an 80% majority in the Senate and a 78% majority in the House, this bill is a no-brainer and should be passed! But don’t take it for granted. Let your state Senator and Representative know you want Arkansas’ economy to grow and to support HB1817.