Legislature Cuts Taxes While Balancing State Budget
LITTLE ROCK – Fiscal issues took center stage during the final week of the legislative session.
Lawmakers have been working on a long list of tax cuts, which were finalized in the closing days of the 2021 session.
Legislation to expand the sales tax exemption for purchases of used motor vehicles was first introduced in January, but it took until the closing days of the session for everyone to agree on the details.
House Bill 1912 lowers the sales tax to 3.5 percent on purchases of used motor vehicles costing between $4,000 and $10,000. The first year it is completely in effect, it will save Arkansas consumers an estimated $13.1 million.
The lower tax rate will apply to used trailers and semi-trailers too. Tax officials estimate that buyers of more than 36,000 used vehicles will benefit from the lower tax rate.
Senate Bill 181 expands the number of items that will be exempted from the sales tax during the annual sales tax holiday in late August. It is often referred to as a “Back to School” tax holiday because it is meant to help families buying back to school supplies like clothes and school supplies.
SB 181 makes electronics exempt from the sales tax during the tax holiday. The exempted electronics include cell phones, calculators, computers of all sizes and varieties, printers and keyboards. The list does not include televisions, video games and music systems.
The exemption will save Arkansas families almost $2 million a year.
The legislature has enacted other tax reductions for timber companies, steel mills, schools that buy electronic instructional material, people who restore historic structures, custom printers and farmers who build impoundment and irrigation systems to preserve groundwater.
After passage of the tax reductions, legislators had a clear idea of how much funding would be available for next year’s state government budget.
Spending priorities in the Fiscal 2022 budget are in the Revenue Stabilization Act, the balanced budget law for Arkansas. SB 702, this year’s version, authorizes spending $5.9 billion in state taxes. If the economy slows and state tax revenue declines, state agency spending is reduced proportionately. Arkansas does not deficit spend.
The largest spending categories are the Public School Fund, which is about $2.25 billion, and the Medicaid program, which will spend about $1.37 billion in state general revenue. The Arkansas Medicaid program receives matching federal funds at a ratio of more than three to one. Last year the federal government provided $5.9 billion to the Arkansas Medicaid program.
The Department of Correction, which operates prison units housing more than 16,000 inmates, has a budget next year of $375 million. The Department of Community Corrections, which operates work release programs, drug courts and supervises inmates out on parole, will have a budget of $97 million.
The Health Department will get $80 million in state funds and the State Police $70.5 million. The division of Children and Family Services will get $120 million. It operates foster care and adoption services and investigates allegations of abuse and neglect of children.
State-supported universities will receive $612 million and two-year colleges will receive $118 million. Five technical colleges will share $32 million.