The Tax Reform and Relief Task Force is Just Warming Up

The Tax Reform and Relief Task Force met for the second time on Wednesday June 7. Much of the meeting involved necessary housekeeping: explaining the parameters of the task force, including the status of our budget and tax system, goals of the committee and legal parameters that they must operate within. Effectively, this meeting explained the rules of the game, what the task force must do, what kind of revenue it has available to work with, and what it has the power to change. Subsequent meetings are likely to involve more discussion about just how to operate within those parameters, and a heartier debate on the best ideas for tax reform in Arkansas.

Here is what you need to know from this week’s meeting:

  • The committee discussed the goals of the task force as outlined in Act 79 of 2017, which are to modernize and simplify the tax code, make Arkansas more competitive with other states, create jobs, and improve fairness. As was noted at the most recent meeting, everyone has a different definition of fairness. The task force is required to produce a preliminary report on its recommendations by December 12017, and a final report on September 1, 2018.
  • One of the major items that keeps coming up is the possibility of raising revenue by reforming our sales tax exemptions. Sales tax exemptions are a large drain on our state’s tax revenue collections, and many of those exemptions are arguably unfair. There will be difficulty in cleaning up our sales tax exemptions because each group who benefits from an exemption will, of course, not be happy about losing it. Senator Missy Irvin suggested that the task force come up with a standard process for objectively analyzing each exemption to determine if it should stay or be eliminated.
  • Richard Wilson from the Bureau of Legislative Research (BLR) presented the recent state revenue report, including the multitude of ways that tax revenue is collected in Arkansas. That report shows that we don’t have much extra money to work with in our state budget because revenue collections are relatively flat. Our state’s Net General Revenue is down $49 million (or 1 percent) compared to last year. That means that any tax cuts will likely come from budget cuts, not economic growth.
  • Joi Leonard from BLR explained some of the legal restrictions that would restrain certain tax change proposals in Arkansas. She explained that Arkansas is a part of the Streamlined Sales Tax Agreement, which has revenue benefits, but also comes with some limitations. For example, Arkansas would not be in compliance with the agreement if we enacted partial exemptions (such as an exemption on the first $100 of computer sales). This doesn’t apply to a few things like utilities, fuel, and motor vehicles, but there aren’t many exceptions to the agreement.

Another legal distinction that was discussed is the state property tax. The Arkansas constitution prohibits a statewide property tax, so it is a local-only tax. The legislature would have to change the constitution to get around that. This is a part of why our state has remarkably low property taxes compared to other states. However, the legislature does have the power to change the procedure and methods of valuation of property, which could impact the end-result of property taxes collected.

  • Another BLR representative, Jill Thayer, outlined the Request for Proposal (RFP) process to hire consultants to advise the committee. The committee voted to approve the RFP and will begin the application and review process next week.

The next task force meeting is July 11 at 1:30 p.m. at the Capitol. In the meantime, you can stay up-to-date on the tax reform conversation by keeping in touch with the members of the committee:

Chairman: Senator Jim Hendren

Chairman: Representative Lane Jean

Members:

Sen. Johnathan Dismang

Sen. Joyce Elliot

Sen. Bart Hester

Sen. Keith Ingram

Sen. Missy Irvin

Sen. Larry Teague

Sen. David Wallace

Rep. Frances Cavanaugh

Rep. Jim Dotson

Rep. Kenneth Ferguson

Rep. Joe Jett

Rep. Bob Johnson

Rep. Matthew Pitsch

Rep. Warwick Sabin

You can also brush up on our recommendations for tax reform by checking out these reports: