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Arkansas PoliticsBigger GovernmentReadTaxes/Government SpendingUncategorized

Taxes, More Taxes, and the Games They Play

By Conduit For Action


  • Arkansas taxes are high! Only five states are ranked worse than Arkansas.[i] And this horrible ranking is despite small cuts in income tax rates in 2015, 2017, and 2019. Even with the income tax cut, Arkansas’ tax rates are falling farther behind other states instead of improving. In 2018 the same report said eleven states were worse than Arkansas. Now there are only five states with worse tax rates.[ii]
  • Arkansas is playing “give-and-take-away” with tax relief adding taxes that do not even show up in Arkansas’ horrible national ranking. Since 2015 when Governor Asa Hutchinson came into office, Arkansas has been providing some income tax relief but also adding new taxes not considered in national rankings or increasing the tax burden by broadening what existing taxes cover. Here are some examples of these “trade-offs:
    • In 2015 in supporting an income tax cut Governor Hutchinson insisted on raising the capital gains tax. Eventually the legislature restored the lower capital gains rate but only after the Governor got a one year increase.
    • In 2017 when legislators wanted to give an income tax exemption for military retirement pay Governor Hutchinson insisted other taxes had to be raised to at least offset the income tax exemption. He supported increasing the sales tax on soft drinks and candy, taxing digital downloads (such as downloads of movies, books, etc.) under the sales tax, and taxing unemployment benefits under the income tax.
    • In 2019 as part of his income tax Governor Hutchinson insisted on imposing an internet sales tax and increasing taxes on certain car wash businesses.
  • There have been even more tax increases since 2015. For example, the gas and diesel tax increase in 2019 and the tire tax in 2017.
  • In 2019 the tax increases outweighed the tax relief. Despite some income tax relief in 2019, the net result in 2019 was to increase taxes of $64.3 million in FY 2020 and $54 million in FY 2021. That doesn’t even include the 2019 vote to put the sales tax on the ballot for highway and roads. What were the new taxes:
    • An internet sales tax you pay on your online purchases from out-of-state sellers (SB576)
    • Gas and Diesel fuel tax increases (SB336)
    • Tax increases on tobacco products and e-cigarettes (HB1565)
    • A tax increase on your cell phone bills (HB1564)
    • A tax increase on water bills (HB1737)
  • Internet sales tax is the 800 lb. gorilla in the room! The Department of Finance and Administration estimated the tax would increase tax collections from Arkansas consumers by $43.2 million in FY 2020 and $47.1 million beginning in FY 2021. It was a low-ball estimate. Two years prior the sponsor of an internet sales tax bill claimed his tax would be an increase of $100 million a year. In December 2019, DFA said collections of the internet sales tax was running about double the monthly estimate on the marketplace sellers’ portion of internet sales. We think the internet sales tax is taking significantly more from Arkansas taxpayers but DFA says it cannot give an accurate estimate.[iii]

  • DFA unable to verify whether their low-ball estimates of tax increases are accurate or not. We just mentioned the low-ball estimate of the internet sales tax but the same problem exists for other taxes. Another example is the tax increases added to the bill to exempt military retirement pay from income tax. The additional taxes included: (A) An INCOME TAX on unemployment compensation, (B) A SALES TAX on internet downloads, and (C) A SALES TAX on soft drinks and candy. A FOIA request was made to find out whether their estimates of the sales taxes were accurate because many thought it would be higher than the estimate. DFA replied that they had no way of separating out these items to verify whether their estimates had any basis in reality.



[i] State Ends Fiscal Year With $946M Surplus, Above Forecast, Arkansas Business,

Jul. 2, 2021

[ii] Arkansas’ ’19 surplus 5th-largest in 30 years, Arkansas Democrat-Gazette, July 14, 2019

[iii] General-revenue collections down for June in state, Still, amount above forecast, Arkansas Democrat-Gazette, July 3, 2020

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