A cornucopia of measures cutting state income taxes, capital-gains taxes and other taxes sailed through the Arkansas Senate and its tax committee Thursday.
The bills would collectively reduce state general revenue by $9.9 million in fiscal 2014, $84 million in fiscal 2015 and $140 million in fiscal 2016, according to Senate Revenue and Taxation Committee Chairman Jake Files, R-Fort Smith.
These tax cuts are in addition to a measure that may cut the state’s sales tax on groceries in the future, he said.
Files said the tax cuts would be financed in fiscal 2015 and 2016 through savings that the state expects as a result of implementation of the “private option,” which uses federal dollars to purchase private health insurance for about 250,000 Arkansas.
But Sen. Bart Hester, R-Cave Springs, told the Revenue and Taxation Committee that he’s frustrated that the Legislature is only cutting taxes by about $10 million in fiscal 2014.
In contrast, he said, the Legislature is giving $125 million to a steel company to create jobs near Osceola through a bond issue and may use $100 million in surplus funds for General Improvement Fund projects for lawmakers.
Files countered that there are many states not cutting taxes this year.
Some lawmakers favored granting more tax cuts, while others wanted fewer reductions, he said.
Gov. Mike Beebe, a Democrat, said he worries that there could be “a major problem” in fiscal 2016, with tax cuts exceeding $100 million, if tax revenue falls short.
But Files said the Legislature will convene again in 2014 and 2015 and could make adjustments if they are required.
The tax-cut measures that cleared the Senate on Thursday include:
House Bill 1585 by Rep. Charlie Collins, R-Fayetteville, to phase in cutting state income-tax rates by 0.1 percent.
“It gives each taxpaying citizen a tax break,” Files told senators.
He said the bill would reduce state general revenue by $2.5 million in fiscal 2014, $30.4 million in 2015 and $55.7 million in 2016.
But Sen. Bruce Maloch, D-Magnolia, said he preferred targeting the tax relief more toward middle- and low-income Arkansans.
HB1966 by House Speaker Davy Carter, R-Cabot, to cut the state’s capital-gains taxes and increase the standard deduction from $2,000 to $2,200 starting in the tax year beginning Jan. 1, 2015.
It would increase the existing 30 percent income-tax exemption on capital gains to a 50 percent exemption in the tax years starting Jan. 1, 2015. It also would exempt capital gains exceeding $10 million from a gain on or after Jan. 1, 2014.
The bill would cut state general revenue by $600,000 in fiscal 2014, $18.1 million in 2015 and $24.5 million in 2016, according to Files.
SB791 by Sen. Bill Sample, R-Hot Springs, to reduce the sales tax on energy used by manufacturers.
Under existing law, the rate is 2.75 percent through June 30, and it will increase to 3.25 percent on July 1 as a result of voters approving a proposed constitutional amendment in November to increase the sales tax by a half percentage point for roads.
The bill would reduce the rate to 1.625 percent, effective July 1, 2014, and to 0.625 percent, effective July 1, 2015.
It would cut state general revenue by $12.6 million in fiscal 2015 and $18.3 million in 2016, according to Files.
HB1832 by Rep. Darrin Williams, D-Little Rock, that aims to use tax credits to encourage private businesses to invest in poor communities.
It would reduce state general revenue by $19.9 million in fiscal 2016, according to Files.
SB334 by Files to phase in a refund of part of the sales taxes paid by manufacturers on repair and replacement parts and services.
SB463 by Sen. Jim Hendren, R-Sulphur Springs, to exempt military pay and allowances from Arkansas income taxes, starting in tax years beginning Jan. 1, 2015. All active-duty members of the armed services, including National Guard and Reserve units, would qualify for the tax break.
HB1039 by Rep. Jeff Wardlaw, D-Hermitage, to grant a sales tax exemption for energy used in agricultural structures such as breeding houses and hatching units.
SB299 by Sen. Larry Teague, D-Nashville, to create a sales-tax exemption for new and used timber-harvesting equipment, effective July 1, 2014. Under current law, machinery and equipment and related attachments purchased by timber harvesters are exempt on the first $50,000 of the equipment’s purchase price.
SB298 by Sen. Jonathan Dismang, R-Searcy, to create a sales tax exemption for energy used for on-farm and commercial grain drying and storage, effective July 1, 2014.
HB1399 by Rep Joe Farrer, R-Austin, to make volunteer firefighters eligible for an income-tax deduction of up to $1,000 a year, effective Jan. 1, 2014.
It would allow volunteer firefighters to deduct the cost of firefighting equipment that they buy, plus the value of any personal property that is damaged or destroyed during their firefighting duties. It defines a volunteer firefighter as one who receives less than $5,000 in total compensation during the year from a volunteer fire department or firefighting unit.
SB11 by Sen. Gary Stubblefield, R-Branch, creating a sales tax exemption for sales of baling twine, net wrap, silage wrap and similar products that are used for baling, packaging, tying, wrapping or sealing animal feed products.
SB853 by Teague creating a sales-tax exemption for the sale of “a dental device” made for a specific patient, to or by a dentist, orthodontist, oral surgeon, maxillofacial surgeon or endodontist. This includes a dental implant, orthodontic appliance, retainer, crown, bridge or denture.
The Senate also approved SB135 by Sen. Jason Rapert, R-Bigelow, and HB1234 by Rep. Darrin Williams, D-Little Rock, to eventually lower the 1.5 percent grocery tax to 0.125 percent.
The legislation would fulfill one of Beebe’s campaign promises and would lower a tax that hits all Arkansans, regardless of income.
The tax cut is contingent on the state paying off bond obligations that won’t end for years or resolving a decades-old lawsuit that requires the state to pay millions for desegregation efforts. If, in combination or separately, the bond and desegregation costs drop by at least $35 million over a six-month period, the tax cut would kick in.
Cutting the grocery sales tax would reduce state tax revenue by $70 million during the first year of the cut, according to the state Department of Finance and Administration
Front Section, Pages 1 on 04/19/2013