Foundation ranks Arkansas 2nd-highest in U.S. for sales taxes

Thursday, August 29, 2013

Arkansas has the second-highest combined state and local sales-tax rate on average in the nation behind only Tennessee, the Washington, D.C.-based Tax Foundation said Wednesday.

Arkansas’ rate is 9.18 percent - consisting of a 6.5 percent state sales tax and a 2.68 percent average local sales tax, according to the foundation, a nonpartisan research group that has monitored fiscal policy at federal, state and local levels since 1937.

Last November, Arkansas voters approved a ballot measure to increase the sales tax for 10 years to pay for highways and roads. That increased the state’s sales tax from 6 percent to 6.5 percent, effective July 1, which raised Arkansas’ combined sales-tax rate from sixth-highest in the nation to second-highest, said foundation spokesman Richard Borean.

A year ago, the Tax Foundation said Arkansas’ combined sales-tax rate was 8.65 percent - a 6 percent state sales-tax rate and a 2.65 percent average local sales-tax rate.

According to the Tax Foundation’s latest study, Tennessee’s combined sales tax rate of 9.44 percent leads the nation, and Louisiana’s 8.89 percent rate ranks third.Washington state’s 8.87 percent sales tax ranks fourth, and Oklahoma’s 8.72 percent ranks fifth.

Alaska, Delaware, Montana, New Hampshire and Oregon don’t have state sales taxes, but Alaska and Montana allow local governments to charge sales taxes. Alaska at 1.69 percent, Hawaii at 4.35 percent, Maine at 5 percent, Wisconsin at 5.43 percent and Wyoming at 5.5 percent have the lowest average combined rates, the foundation said.

“Taxes are generally associated with slow economic growth,” but they are needed to finance government services, said Tax Foundation economist Scott Drenkard.

To determine a state’s average local sales-tax rate, the foundation said it uses quarterly sales-tax information that’s published by the Sales Tax Clearinghouse by ZIP code. It then weighs those numbers against U.S. Census 2010 population figures.

The foundation and critics of the foundation’s study agreed that sales taxes are just one part of an overall tax structure and should be considered in context.

Stacey Hall, a spokesman for Gov. Mike Beebe, a Democrat, said voters across Arkansas and in local areas of the state have decided to temporarily increase their sales taxes during the past year, and “that is going to push us past some states that have not done that yet.”

Any measure approved by voters “has to be respected,” she said.

Rep. Jonathan Barnett, R-Siloam Springs - who proposed the ballot measure to increase the state’s sales tax by a half-percentage point for 10 years for highways - said, “the voters decided they wanted infrastructure. … We gave them that choice.”

“I wish our [sales] tax rate wasn’t high,” he said.

“Everything is relative,”Barnett said, adding that Arkansas’ property taxes are much lower than Texas’ property taxes.

Senate President Pro Tempore Michael Lamoureux, R-Russellville, said the Tax Foundation’s ranking of Arkansas is “not at all” a surprise.

“I don’t think it is a good thing,” he said.

But, he said, it takes only a majority vote in the 100-member House and 35-member Senate to raise the state’s sales tax, making that tax easier to raise than some other taxes.

The last time the Legislature passed a state sales-tax increase was in 2004.

The 2004 Legislature raised the sales tax from 5.125 percent to 6 percent and expanded the tax to cover 15 services. At that time, the higher tax was projected to raise about $360 million a year for public schools as part of the state’s effort to comply with a 2002 state Supreme Court ruling on public-school funding.

The high court had ruled that the Legislature had to come up with more money for public schools, distribute the money to achieve an equitable and adequate education for every one of the 450,000 public school children, and improve teacher pay so that poor school districts didn’t lose instructors to rich ones, among other measures.

Whitney McLaughlin, a tax analyst for the state Department of Finance and Administration, said the Tax Foundation study takes into account only sales tax rates.

“A more comprehensive comparison would be a comparison of total state and local taxes,” she said.

Arkansas ranked 37th in total per-capita state and local taxes on the basis of fiscal 2010 information published by the U.S. Census Bureau, according to McLaughlin.

Arkansas’ annual per-capita state and local taxes are $3,248 compared with the national average of $4,105, she said.

Arkansas ranked 24th in state and local taxes as a percent of personal income as reported by the U.S. Census Bureau - at 10.2 percent compared with the national average of 10.5 percent, McLaughlin said

The Census Bureau data are widely used in state and local financial comparisons, and allows comparison among states, which is vital to understanding intergovernmental finance, she said.

The Tax Foundation ranked Arkansas’ business-tax climate as 33rd in the nation with property taxes and unemployment insurance taxes each ranked 19th, individual income taxes ranked 28th, corporate income taxes ranked 37th and sales taxes ranked 41th.

Rich Huddleston, executive director of the Arkansas Advocates for Children and Families, said it’s a mistake to look only at sales-tax rates, and “to get a real sense of sales-tax burden, you need to compare sales taxes actually paid to the state’s total personal income.”

Nonetheless, “there is no denying that Arkansas has a high sales-tax burden as a percent of personal income,” and it’s “a very regressive sales tax that hits low- and middle-income families the hardest because so much of their income is spent on basic needs and items subject to sales taxes,” he said.

“It’s easy to complain about taxes, but we need taxes to pay for things that will allow us to better compete economically, such as a better and more-qualified workforce.” He also pointed to funding for “high-quality pre-K, good health care, good roads and highways, and other public amenities that will allow us to attract knowledge-based workers and high-tech companies,” Huddleston said. “All of that costs money that has to come from somewhere. You have to pay for investments to be more competitive.”

Front Section, Pages 1 on 08/29/2013