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BREAKDOWN: MAJOR TAX LEGISLATION FILED SO FAR

With the 93rd General Assembly now over six weeks into their session, it is a good time to look back at major tax legislation that has been filed and review its status.  Both the Senate and House chairs of the Revenue and Taxation committees have announced that any major general revenue impact bills can be heard in committee and discussed but no vote to move them out of the committee will be taken. This essentially pushes all major tax legislation to “on hold” until the chairs or leadership decrees it is okay to move forward. The chart below will breakdown the bill with a description, its revenue impact (according to DFA), and the bill status.  Following the chart is our analysis of each bill in detail.

Bill Number Description Fiscal Impact (FY2022) Status
SB2 Massive Tax Increase for Redistribution of Wealth Scheme-OPPOSE None Provided In Senate Revenue and Tax Committee
SB9 Repeal of Car Wash Water Usage Tax-SUPPORT -($670,000) Heard in Senate Revenue and Tax Committee/HELD
SB10 Redistribution of Wealth Through EITC- OPPOSE -($77,300,000)[1] In Senate Revenue and Tax Committee
SB117 Hybrid Car $100 Fee Removed -SUPPORT -($2,200,000) In Senate Revenue and Tax Committee
HB1011 Repeal of Income Taxes for Those

Making Under $22,000 -SUPPORT

-($86,500,000) In House Revenue and Tax Committee
HB1030 Ensuring Increases in Gas Tax Revenue -OPPOSE $0 In House Revenue and Tax Committee (Deferred List)
HB1038 Internet Sales Tax on Delivery Charges -OPPOSE $0 In House Revenue and Tax Committee (Deferred List)
HB1045 Defines Cigarette Paper to Include

Marijuana and Vaping Products -OPPOSE

Unknown In House Revenue and Tax Committee
HB1157 Increased Deduction for Teacher Expenses- SUPPORT -($237,000) In House Revenue and Tax Committee
HB1160 Sales Tax Exemption for Used Cars Increased Over Time; Tax Increase on Trailers -SUPPORT -($8,966,800) In House Revenue and Tax Committee
HB1190 Cost of Living Adjustments for Standard Deduction- SUPPORT -($900,000) Heard in House Revenue and Tax Committee/ HELD
HB1191 Increase of Standard Deduction

from $2,200 to $4,400 -SUPPORT

-(64,900,000) In House Revenue and Tax Committee
HB1371 Phasing Out and Ending the Soft Drink Tax -SUPPORT -($30,810,894)

*FY2025*

In House Revenue and Tax Committee
HB1371 School Choice Tax Credit Scholarships- SUPPORT None Provided In House Education Committee
HB1403 Reducing the Top Income Tax Rate

from 5.9% to 5.8%- SUPPORT

None Provided In House Revenue and Tax Committee
HB1431 Straight Removal of Used Car Sales Tax

on Vehicles Less than $10,000- SUPPORT

None Provided In House Revenue and Tax Committee

 

Through January of this year the current surplus is about $400 million[2] so all of these tax proposals are “affordable” without any increases in taxes elsewhere. The good news is that so far, no drastic straight tax increases have been filed other than SB2 which has still not received a fiscal impact statement. While the fiscal impact statement for SB10 shows a net reduction through the EITC program, this is just a redistribution of wealth scheme that will see that money redistributed through refundable tax credits (see footnote.)

Full Bill Analysis:

SB2 – Massive Tax Increase for Redistribution of Wealth Scheme – OPPOSE

By: Sen. Jim Hendren (R – Gravette)

This bill will be touted by its sponsor as a tax cut bill.  Do not be fooled. It is simply an attempt to back-door onto the backs of the people of Arkansas, something that would otherwise not pass. The something that would not pass is a new, fraud-filled welfare program.

The bill itself is remarkably similar to the sponsor’s failed 2019 attempt at a $100 million tax increase for a redistribution of wealth scheme through increasing taxes on smoking and vaping, including the closing of vaping small businesses.  Like the federal government, this bill will establish a state Earned Income Tax Credit (EITC).  This new welfare program allows people to receive money from the State of Arkansas when they file an income tax return. Unlike the terms “tax refund” or “tax credit” imply, this would be a new means by which the state of Arkansas delivers to the recipients’ new welfare payments.  It is not a reduction in taxes owed nor a refund of taxes paid by the filer.

Under the bill’s redistribution scheme, the EITC would be at least five percent (5%) of the federal EITC, if funds are available, and sets no maximum cap as long as there are trust funds to cover it.  With funds available, the bill actually allows the Secretary of DFA to determine the maximum paid to the claimants and is directed to annually notify those potentially eligible to apply for the new welfare benefit.

Under this bill, the “conservative Republican” sponsor has now evolved the “We can’t pass a tax cut in AR unless we pay for it with a tax increase….” blueprint to “We can pass new welfare benefits if we pay for them with tax increases.”

Another previously successful piece of his tax increase bill blueprint is to include a “conservative talking point” for the re-election of his “conservative Republican” legislator friends. For this particular bill, this new talking point is that the bill cuts taxes by increasing Arkansas’ very low standard deduction from $2,000 to $3,200 and eliminating the 2% tax bracket for those making below $8,900.  (Of course, these tax cuts could easily pass in a stand-alone tax cut bill since Republicans hold more than a super majority in both Chambers.)

One of the ironies of this new welfare, tax increase bill is that it hits hardest those the welfare piece is to help by imposing a new privilege tax on vaping and a new 20% increase (special) tax on cigarettes. According to the CDC, those below the poverty level smoke and vape at higher rates than the general population.

Not only is a new welfare program a bad idea, the EITC program itself is riddled with fraud at the federal level. The state will be no different if not worse. (Though there is no Legislative Impact Statement on this bill, see the footnote on SB10-its sister legislation, regarding fraud.)

Conduit stands opposed to this attempt to create a new welfare program, raise taxes, expand government, and increase dependency on government.

 

SB9 – Repealing of Car Wash Water Usage Tax – SUPPORT

By: Sen. Gary Stubblefield (R – Branch)

This bill repeals a 2019 law that instituted a new tax/fee based on the amount of water is used in car washes. There was great dismay and conflict over larger car wash companies and smaller ones during the 2019 session with the larger car wash companies winning out on the final language in the law. This law would repeal the requirement of registering with the state if you use a public water system in your car wash and then paying a tax/fee based on how much water is used. This should reduce the tax liability for car washes and allow them to reinvest that money back into their company, employees, and community giving them more economic freedom.

 

SB10 – Redistribution of Wealth through EITC – OPPOSE

By: Sen. Dave Wallace (R – Leachville)

This bill is a standalone establishment of a new welfare program–a state Earned Income Tax Credit (EITC). (However, it does not include enticements for Republicans to vote for it like its sister bill, SB2.)

This new welfare program allows people to receive money from the State of Arkansas when they file an income tax return (even if not an Arkansas resident with Arkansas income.)  Unlike the terms “tax refund” or “tax credit” imply, this would be a new means by which the state of Arkansas delivers to the recipients’ new welfare payments. It is not a reduction in taxes owed nor a refund of taxes paid by the filer.

Under the bill’s redistribution scheme, the EITC would be ten percent (10%) of the federal EITC amount. It also requires the DFA Secretary to annually notify those potentially eligible to apply for the new welfare benefit.

As mentioned in SB2 above, the federal EITC program is riddled with fraud. Even its DFA Impact Statement warns of potential increase in fraud claims and cites the federal EITC fraud claims at 25.3%.  DFA also warns that since there is no apportionment of the credit for out of state filers, the bill may incentivize out of state filers to make claims.   Conduit has previously opposed this redistribution of wealth and government growth scheme and will do so again.

 

SB117 – Hybrid Car $100 Fee Removed – SUPPORT

By: Sen. Mark Johnson (R – Little Rock)

Previously the state legislature, as a way to increase revenue for roads, created a new $100 annual fee that hybrid vehicle owners must pay.  Electric vehicle owners pay $200 per year. While electric vehicles do not pay gas taxes (which go to support the roads), hybrid vehicles do. Therefore this $100 fee is a form of double taxation.  This bill removes that double taxation, keeping more money in the pocketbooks of Arkansans who own hybrid vehicles.

 

HB1011 – Repeal of Income Taxes for Those Making Under $22,000 – SUPPORT

By: Rep. Joe Jett (R – Success)

This bill would exempt from income tax any income of person’s making less than $22,000 annually.  It is unclear the fiscal impact at this time, but it should be noted that this bracket of people usually pay the least in taxes and qualify for the most welfare programs.  However, on net, it should reduce the amount of money flowing to the government through taxation and leave that back into people’s pockets and in the economy, which is a net positive.

HB1030 – Ensuring Increases in Gas Tax Revenue – OPPOSE

By: Joe Jett – (R- Success)

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.

 

HB1038 – Internet Sales Tax on Delivery Charges – OPPOSE

By: Joe Jett (R – Success)

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.

 

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

By: Rep. Joe Jett (R – Success)

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[1] 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.  (It is past time we stop using vices in this state to increase state revenues.)

 

HB1157 – Increased Deduction for Teacher Expenses – SUPPORT

By: Rep. David Tollet (R – Lexa)

This bill would increase the tax deduction for teachers who spend their own money for their classrooms/students. It would double the deduction from $250 to $500. This is important to support the teachers, would reduce the revenue flowing to the state, and provide additional support to teachers who are also having to change routines due to COVID19. This is a way to support teachers without raising taxes or spending money we do not have.

 

HB1160 – Sales Tax Exemption for Used Cars Increased – SUPPORT

By: Rep. John Payton (R – Wilburn)

This bill would remove the sales tax for used vehicles purchased for less than $7,500 first then for used vehicles less than $10,000 after two years.  Most Arkansas workers commute to work by private vehicle. With the current used cars sales tax, Arkansans are being subjected to double taxation. Currently any used cars over $4,000 are subject to the state’s 6.5 percent sales tax, in addition to local sales taxes. Low-income workers, in particular, may be able to finance a used vehicle but unable to pay up front significant (often unexpected) sales taxes. Arkansas already charges sales tax on new vehicles, so used vehicles that get resold—or resold multiple times—are being taxed repeatedly. This bill reduces double taxation and provides more economic freedom for Arkansans to buy a used vehicle; get to work, school, church; and boosts the local economy.

 

HB1190 – Cost of Living Adjustments for Standard Deduction – SUPPORT

By: Rep. David Ray (R – Maumelle)

This bill would increase the standard deduction taxpayers can take each year on their personal state income tax return by adding a cost-of-living increase to raise the standard deduction. This would prevent a stealth tax increase as inflation and the increase in the cost of living cause more money to go to the government when the value of the standard deduction decreases by staying stagnant.  The bill will mean more money in people’s pockets as things get more expensive.

 

HB1191 – Increase of Standard Deduction – SUPPORT

By: Rep. David Ray (R – Maumelle)

This bill would increase the standard deduction for income tax filers from $2,200 to $4,400 beginning with the 2021 tax year. This increase will mean more money in the pockets of Arkansans and less flowing to government. This is an effective tax cut for all Arkansans (rich and poor) rather than something like an EITC welfare scheme.

 

HB1316 – Phasing Out and Ending the Soft Drink Tax – SUPPORT

By: Rep. Lanny Fite (R – Benton)

This bill would gradually over several years phase out the soft drink tax. The syrup soft drink tax would drop from the current $1.26 per gallon down to 96.5 cents per gallon beginning in 2023. It would drop again to 47.3 cents per gallon beginning in 2024. And it would expire beginning in 2025. The tax on bottled soft drinks would drop from the current 20.6 cents per gallon, down to 15.5 cents per gallon in 2023, 7.7 cents per gallon in 2024, and expire in 2025. For FY2020, the soft drink tax brought in nearly $40 million so by phasing out this tax it will save taxpayers $40 million that will be kept in the economy rather than going to government.

 

HB1371 – School Choice Tax Credit Scholarships – SUPPORT

By: Rep. Ken Bragg (R – Sheridan)

This bill would create a tax credit scholarship program to fund scholarships for the education of K-12 students. A dollar-for-dollar income tax credit would be provided (up to $10 million in the first year) for individuals and businesses who donate to the scholarship program. The program would be split with public-school grants ($6 million) and private school scholarship accounts ($4 million). Per student funding of about $7,000 per student would be available. The scholarships would only be available for students transferring from a public school to a private school and whose family is no more than 200% of the federal poverty level. This is about $72,000 for a family of four. This is a good bill that expands school choice opportunities for lower-income students in Arkansas.

HB1403 – Reducing the Top Income Tax Rate – SUPPORT

By: Rep. John Maddox (R – Mena)

This bill would reduce the top income tax rate in Arkansas from 5.9% to 5.8%. It would also reform the tax brackets for top income earners (those above $79,300) to where the first $0-$4,000 is taxed at 2%, $4,001 – $8,000 at 4% and $8,001 and above at 5.8%. Though a small tax relief bill, it still should reduce the overall taxes flowing to government and keep money in the pocketbooks of hardworking Arkansans to invest or stimulate the economy how they see fit.

HB1431 – Increased Sales Tax Exemption for Used Cars – SUPPORT

By: Rep. Robin Lundstrum (R – Elm Springs)

This bill would increase the sales tax exemption for used cars from the current $4,000 to $10,000, effective when/if the bill becomes law rather than a phased in approach.  As a rural state with limited-to-no public transportation options, personal vehicles are critical for workers to get to work.  Nearly all Arkansas workers commute to work by private vehicle. Unfortunately, Arkansans are being subjected to double taxation. Any used cars over $4,000 are again subject to the state’s 6.5 percent sales tax, in addition to local sales taxes.  Low-income workers in particular may be able to finance a used vehicle but unable to pay the significant (and perhaps unexpected) sales taxes.  Arkansas already charges sales tax on new vehicles, so used vehicles that get resold—or resold multiple times—are being taxed repeatedly.  This bill addresses that double taxation for vehicle sold for $10,000 or less and provides more economic freedom for Arkansans as they work, live their lives, and engage in the local economy.

[1] According to DFA, this amount is projected to be the reduction in state general revenue paid to the welfare recipients and not an amount of a tax cut.  This program is expected to cost $350K/yr for 5 new employees to audit it; at least 25.3% expected in fraudulent claims; expectation of payments to out of state filers w/more out of state incentivized to file.

[2] https://talkbusiness.net/2021/02/arkansas-net-available-tax-revenue-surplus-tops-400-million/

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