3 tax cuts clear state’s Senate

Bills on groceries, energy use and used cars move to House

 State Sen. Jake Files (left) on Tuesday congratulates state Sen. Bill Sample after Sample’s bill to give a sales-tax break to energy manufacturers was passed by the Senate.
State Sen. Jake Files (left) on Tuesday congratulates state Sen. Bill Sample after Sample’s bill to give a sales-tax break to energy manufacturers was passed by the Senate.

— The Arkansas Senate on Tuesday approved three tax cut bills that would reduce state revenue by about $34 million a year.

The bills would cut sales taxes on groceries and on manufacturers’ energy use and increase the sales-tax exemption on used cars.

The state is projecting $125 million in general revenue growth next fiscal year. Legislators have been looking for ways to trim tax rates to please an electorate that in the 2010 election swept into this year’s Legislature a number of tax-cut promising candidates.

The three bills move to the House, which already has approved and sent to the Senate three others, including one that would do away with the state’s capital-gains tax on some property, denting state revenue $44 million on its own, and will be likely to face a rockier ride in the Senate.

The grocery-tax cut was Senate Bill 276 by Sen. Larry Teague, D-Nashville, which is Gov. Mike Beebe’s plan to lower the 2 percent tax to 1.5 percent. It sailed through 35-0. This one would reduce state revenue by $20.8 million in fiscal 2012, according to the state Department of Finance and Administration. Since becoming governor in 2007, Beebe has led the Legislature to cut the rate from 6 percent.

On a 33-0 vote, the Senate approved Sen. Gilbert Baker’s bill to enlarge the exemption from sales tax on a used-car sale from $2,500 of the sales price to $5,000. Senate Bill 274 would reduce tax revenue by $5.85 million in fiscal 2012. Baker, R-Conway, called it a bipartisan effort to help “regular working families” buy “a little better used car” before the sales tax applies.

The most contentious tax cut to clear the Senate was Senate Bill 275 by Sen. Bill Sample, R-Hot Springs, which would reduce the sales tax on energy used in manufacturing from 3.125 percent to 2.625 percent. The vote was 23-9. The bill also would reduce the sales tax on energy used by power plants from 6 percent to 2.625 percent over a three year period, according to the department. It would reduce tax revenue by $7 million.

Sample told senators that “these manufacturers desperately need help” and “we are trying to keep manufacturers in the state of Arkansas.” He said the tax cut would be paid out of growth in state tax revenue.

But Sen. Kim Hendren, R-Gravette, who voted against the bill, said chicken growers “manufacture chickens” and should get the same tax cut as manufacturers. Sample declined Hendren’s request to send the bill back to the tax committee to be amended.

Sen. Joyce Elliott, D-Little Rock, said research shows that education, infrastructure and qualify of life are the three major reasons business decide to locate in a particular state.

But Sen. Jerry Taylor, D-Pine Bluff, insisted the bill would save jobs in his district.

“I believe we need to do all we can do to be conducive to industry,” he said.

The bills the House passed would cut the sales tax on energy used in manufacturing, cut the income tax for capital gains and cut the income tax for certain low-income people. The capital-gains tax cut is House Bill 1002 by Rep. Ed Garner, R-Maumelle. It would exempt all capital gains from the proceeds of a sale of Arkansas property acquired after July 1, 2011, and owned for at least one year. The bill defines “Arkansas property” as real estate, tangible property and investments in a company with its primary headquarters in Arkansas.

Beebe said Monday that he was more likely to reach agreement on passing tax cuts for energy use in manufacturing and for used-vehicle purchases than agree to a cut in the capital-gains tax, which he has likened to “voodoo economics.”

But Baker, co-chairman of the Joint Budget Committee, said Tuesday that he’s “open” to the capital-gains cut.

“We are getting some differing opinions on [the finance department’s estimate on the revenue loss],” Baker said.

House Revenue and Taxation Committee Chairman Davy Carter, R-Cabot, said he expected the three Senate-approved bills to be considered in the House committee next week at the earliest.

Asked whether the committee would hold Beebe’s grocery-tax cut for negotiations on other tax cuts, Carter said, “I think there is support for most all of those bills in the House, so it is just a matter of how many can we get through the system in a reasonable manner.

“There is support for the grocery bill, the capital-gains bill and all of them,” he said. “I think the House and the Senate and the governor, we all need to be on the same page.”

TAX HOLIDAY

In the House committee, another tax-cut bill received a recommendation. House Bill 1369 by Rep. Matthew Shepherd, R-El Dorado, would create a “sales tax holiday” during the first weekend in August for items of clothing, clothing accessories, school supplies, school art supplies and school instructional material. No article of clothing costing more than $100 would be eligible for the tax break.

Shepherd said the bill would make Arkansas competitive with states that have the tax holidays before school starts and give parents incentive to do their shopping within the state for back-to-school items.

Rep. Fred Love, D-Little Rock, said he supports HB1369 because it “would help the working families of Arkansas.”

According to the finance department, the bill would result in a revenue loss of $2.1 million in fiscal 2012 and a $710,000 loss to city and county sales-tax collections.

Revenue Commissioner Tim Leathers testified against the bill, saying the revenue loss isn’t contemplated in Beebe’s proposed $4.59 billion general-revenue budget for the state for fiscal 2012.

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Leathers said that studies of tax holidays in other states have shown that they don’t create much business for merchants. He said they shift to one weekend sales that would have happened at other times.

And, he said, there is no assurance that the tax break won’t go for a “30-year-old woman buying a purse” for herself versus a parent buying a purse for a child to take to school.

The bill goes to the House for consideration.

AUTISM THERAPY

The House Public Health, Welfare and Labor Committee added an age limit to a bill to require some insurers to cover the cost of therapy for autism spectrum disorders.

House Bill 1315 by Rep. Uvalde Lindsey, D-Fayetteville, requires some insurance companies to cover up to $50,000 in therapy per year for children diagnosed with an autism spectrum disorder. The amendment added Tuesday would also limit the insurance coverage to those under age 18.

Lindsey said the age limit would reduce the insurance rate increase passed on to consumers. It is expected to raise insurance premiums about 1percent, according to the Department of Finance and Administration.

The bill would apply to group and individually purchased health policies but not self-funded company plans, which are the majority of plans in Arkansas and are federally regulated.

Autism spectrum disorder ranges from autism disorder (the most severe and least frequent) to pervasive development disorder not specified (the most common form), according to the National Institute of Mental Health.

Lindsey said one in 93 boys and one in 345 girls in Arkansas have autism.

The amendment also allows the insurance companies to ensure that the diagnosis is made based on medical need.

Rep. Bryan King, R-Berryville, questioned why the state should mandate that insurance companies provide coverage to treat autism but not other disorders.

According to the state Insurance Department, Arkansas requires insurance companies to cover the cost of treating 14 other medical problems or procedures, including diabetes, prostate cancer and in-vitro fertilization.

LEGISLATORS’ PROJECTS

Lawmakers and the governor will have to split $30 million for their pet projects this year, a budget co-chairman said Tuesday.

Rep. Kathy Webb, D-Little Rock, told a group of lawmakers who met informally to discuss which local projects to select that they shouldn’t expect to have more than $30 million in the General Improvement Fund. The fund is made up mostly of surplus dollars

Lawmakers have until the end of the week to prioritize a list of 11 projects that have received money from the fund in the past, including projects that exist in every legislative district like Boys and Girls Clubs, libraries and fire departments. Webb said afterward that some of that money may be used on prisons, instead.

“We want to take care of the obligations that we have,” Webb said.

The projected amount is significantly less than two years ago, the last time the money was divvied up.

In 2009, the General Improvement Fund totaled $355 million. Beebe got the largest chunk - $113 million. About $100 million went toward shoring up the state’s general-revenue budget, which finances state agency operations. The House got $30 million to divvy up, and the Senate got $30 million.

SEAT BELTS

The House rejected a bill to require the use of seat belts by passengers in the back seat of a vehicle.

House Bill 1365 by Rep. Hank Wilkins IV, D-Pine Bluff, would have set a $25 fee to be assessed to adults caught not wearing seat belts in the back seat. It failed 34-57.

Some lawmakers said the move would have been an unnecessary intrusion.

“How much more are we going to put on the people, the mandates that take away the freedom they have of decision?” Rep. Terry Rice, R-Waldron, said.

Last session, the Legislature passed a law allowing police officers to stop drivers for not wearing seat belts.

Wilkins said about 29 unbuckled people in back seats were killed last year.

Front Section, Pages 1 on 02/23/2011

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