Hutchinson sent bill to cut taxes on vets' pensions

The Arkansas Senate voted Thursday to send Gov. Asa Hutchinson legislation that would exempt military retirement benefits from state income taxes and cut the special excise tax on soft-drink syrup.

With five senators voting present and one not voting, the Senate voted 29-0 for House Bill 1162, proposed by Rep. Charlene Fite, R-Van Buren.

The bill also would increase the 1.5 percent sales tax on candy and soft drinks to 6.5 percent, levy income taxes on unemployment compensation and impose a sales tax on certain digital products to pay for the tax cuts.

The income tax exemption on military retirement benefits "makes us competitive with other states on attracting this [retired military] workforce, which is desperately needed," Senate Republican leader Jim Hendren of Sulphur Springs said. Hendren presented HB1162 to the Senate.

"These people who are retiring now after 20 years of service, have spent 15, 16, 17 years in a state of combat, which means they are going to be deployed a lot ... so to me [the bill] is a way for our state to say we appreciate that service," said Hendren, who is a colonel in the Missouri Air National Guard.

Hutchinson probably will sign the legislation Tuesday, Hutchinson spokesman J.R. Davis said. HB1162 would take effect beginning with the 2018 tax year.

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Uniformed service retirees from the U.S. Army, Marine Corps, Navy, Air Force and the Coast Guard would be eligible for the exemption. The legislation also would exempt the retirement benefits of retirees of reserve components, any state's National Guard, the reserve corps of the U.S. Public Health Service and the National Oceanic and Atmospheric Administration Commissioned Officer Corps.

Those claiming an exemption would be unable to also claim the $6,000 exemption on nonmilitary retirement benefits, according to the state Department of Finance and Administration.

The exemption is projected to cut general revenue by $6.7 million when it takes effect in mid-fiscal 2018 and then $13.4 million in fiscal 2019, according to the state.

That estimate is based on 29,009 retired taxpayers who receive a pension, and the raw average benefit for each retiree would be $462 a year, said Lynne Reynolds, income tax administrator for the finance department.

HB1162 also would reduce the special excise tax levied on bottled soft drinks and soft-drink powders from 21 cents to 20.6 cents per gallon, and the tax for each gallon of soft-drink syrups from $2 to $1.26.

It also would transfer $3 million in midfiscal 2018 to the Medicaid program, to offset the reduction in that tax, and would transfer $5.9 million in fiscal 2019.

The measures also would levy the 6.5 percent sales-tax rate on candy and soft drinks rather than the reduced rate of 1.5 percent on foods, to raise $6.9 million in fiscal 2018 and $13.8 million in fiscal 2019; make unemployment compensation benefits subject to state income taxes, to raise $1.6 million in fiscal 2018 and $3.1 million in fiscal 2019; and levy a sales tax on sales of certain digital products -- including audio works, audiovisual works and books, as well as on sales of digital codes that allow the consumer to access these products -- to raise $1.2 million in fiscal 2018 and $2.4 million in fiscal 2019.

The five senators who voted present were Alan Clark, R-Lonsdale; Linda Collins-Smith, R-Pocahontas; Scott Flippo, R-Mountain Home; Stephanie Flowers, D-Pine Bluff; and Gary Stubblefield, R-Branch. Sen. Bryan King, R-Green Forest, was the only senator recorded as not voting.

Flippo and Stubblefield are among the 14 Senate sponsors of HB1162.

Flippo said he voted present on the bill because it had changed since he agreed to sponsor the legislation and he didn't feel comfortable with imposing a sales tax on digital downloads of books, CDs and music and increasing the sales tax on candy and soda.

The tax increases wouldn't expire if more military retirees eventually move into the state and make the tax exemption pay for itself, he said.

"Nobody ever wants to look like they are being anti-military," he said, and the veterans in his Senate district were divided about the legislation, he said.

A bill identical to HB1162 -- Senate Bill 120 by Sen. Jane English, R-North Little Rock -- is in the House Revenue and Taxation Committee.

English said Thursday that she doesn't know whether her bill will be presented to the House tax committee, in light of the Senate approving HB1162.

"We are in good shape. I'm not worried about it," she said.

A Section on 02/03/2017