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Arkansas Tax Task Force Refines Recommendations for 2019 Legislation

LITTLE ROCK, Ark. - After months of what-ifs, Arkansas lawmakers are refining their list of tax proposals they plan to turn into legislation.

Ahead of its September deadline, the Tax Reform and Relief Task Force voted on about 20 sales, property, income and excise tax changes Tuesday. 

One of the biggest talkers was the internet sales tax, following the recent U.S. Supreme Court decision.

"I've said for years that the internet tax is the only opportunity that the highway department is ever going to have in being able to try to find funding," Sen. Keith Ingram, D-West Memphis, told his colleagues. 

The task force narrowly decided to draft a bill that would require certain out-of-state sellers without a physical presence in Arkansas to collect and remit sales taxes. The state would devote the revenues to tax cuts.

The Arkansas Department of Finance and Administration (DFA) estimates the sellers would collect and remit $35.4 million, with an estimated $24.5 million increase in general revenue.

"If the tax on internet sales is seen as a new tax, that would mean they want to reduce something to offset that," said Jeremy Horpedahl, an assistant economics professor at UCA. 

Horpedahl has monitored the task force since a 2017 law created it. That is why he thought the earned income tax credit (EITC) would be more of a talker at Tuesday's meeting. 

However, the proposal's sponsor, Sen. Joyce Elliott, D-Little Rock, left disappointed, after her colleagues did not even vote to consider it.

The EITC was also looped in with an individual income tax cut proposal, but when it came time for lawmakers to prioritize, that one came in third. The governor's plan to cut only the top rate from 6.9 to 6 percent came in second, while the tax panel ranked a compromise first.

"The option A, which was the most favored by the task force, cuts the top rate less [6.5 percent], but it also consolidates the brackets, which will give tax cuts to people with middle incomes as well," Horpedahl said. "Who knows how it'll work out politically." 

To help fund individual income tax cuts, lawmakers talked a lot about raising the cigarette tax.

"I sit right next to Oklahoma in my district," co-chair Sen. Jim Hendren, R-Gravette, told his colleagues. "They just raised it a dollar a pack July 1." 

Other excise tax proposals included e-cigarettes and alcohol.

"A lot of them could fund the entire tax cut," Horpedahl said. "As opposed to a net tax cut overall." 

But in the end, those three proposals were all talk. The task force voted to not draft legislation on them. 

The group did approve two other excise tax proposals. One would index the state’s gas tax based on the inflation rate of construction costs, while the other would create a user fee for drivers of electric and hybrid vehicles.

Lawmakers also voted to lower the corporate income tax rate from 6.5 percent to 5.9 percent by using tax triggers and extend net operating losses (NOLs) from five to 20 years, which matches most other states. 

The tax panel meets next in two weeks to finalize the report that will go to the governor.

Members plan to work from September to the end of the year on draft bills. 

To view the entire list from Tuesday's meeting, click here

To read DFA's fiscal impact of each proposal, click here


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