Legislature Considering More Tax Cuts
LITTLE ROCK – The Senate has already approved several large tax cuts this session, and another one is on its agenda.
Senate Bill 576 will make far-reaching changes in the state corporate income tax code, to the extent that the Department of Finance and Administration will have to update its computers from now until 2024 in order to process them.
The Senate Revenue and Taxation Committee advanced the bill, which will be considered soon by the entire Senate.
By Fiscal Year 2023, when most of the bill’s provisions are fully in effect, they will save Arkansas businesses more than $57 million a year.
SB 576 extends a company’s ability to carry forward net operating losses. The longer carry forward period will gradually extend to 20 years. Now it is five years.
The bill changes how multi-state corporations calculate the Arkansas portion of their taxable income. Now, they use a formula based on sales, property and payroll. SB 576 changes the apportionment formula so that it considers only sales in Arkansas compared to sales everywhere else.
The bill also allows more favorable treatment of income when Arkansas firms sell products to other states, where the receiving state does not levy taxes on them. Half of those sales will be exempt in 2021 and all income from those sales will be exempt in 2022.
Much of the loss of revenue from the tax relief would be offset by collecting sales tax from remote sellers, which are Internet companies that have no physical presence in Arkansas.
The legislature has already enacted a $97 million income tax cut that lowers the top marginal rate.
About 579,000 taxpayers with income of more than $38,200 will have lower taxes.
The Senate has passed SB 447 to increase the homestead property tax credit from $350 to $375, and the bill is awaiting action in House committee.
By the thinnest of margins, the Senate approved SB 571 to set up an earned income tax credit for people with low incomes, and to reduce the income tax rate for low income taxpayers. It also increase the standard deduction by $1,100, which helps anyone who claims it.
The Senate passed SB 571 by a vote of 18-to-14. In the 35-member Senate, 18 votes were necessary for passage. The bill has yet to be considered by the House of Representatives.
The lost revenue would be offset by increases in taxes on cigarettes and vaping. The bill’s sponsors say that revenue from tobacco taxes is much less than the cost to the state for treating Medicaid patients with tobacco-related illnesses. The gap is $500 million a year.
The House passed HB1342 to raise the threshold for exempting purchases of used cars from the sales tax. It’s now $4,000 and the bill would raise exempt sales of used cars up to $7,500.
The bill also exempts sales of used trailers if they cost less than $4,000. About 38,000 additional used vehicles would become exempt if the bill passes.
Both chambers have passed HB 1564 to modernize 911 call systems. Funding will be from higher fees on cell phones. Fees on landline telephones have dropped severely, because so many consumers have switched to cell phones and have cancelled their land lines.
The House must agree with a Senate amendment for passage of the bill to be final.
Also, both chambers have passed legislation to move primary elections from May to March in years of presidential elections. It has been sent to the governor.