Legislation that would exempt military retirement and survivor benefits from state income taxes sailed through the House Revenue and Taxation Committee on Thursday, after more than an hour of discussion.
With no debate, the committee subsequently advanced a bill that would implement Gov. Asa Hutchinson's plan to cut individual income tax rates for Arkansans with taxable income of less than $21,000.
In a voice vote with no dissenters, the House tax committee sent the bill on military retirement income taxes -- House Bill 1162 by Rep. Charlene Fite, R-Van Buren -- to the full House.
The bill also would cut the special excise tax on soft-drink syrup, increase the sales tax levied on candy and soft drinks, levy income taxes on unemployment compensation and impose a sales tax on certain digital products.
The bill would become effective Jan. 1, 2018, cutting general revenue by $6.7 million in fiscal 2018 and then $13.4 million in fiscal 2019, according to the state Department of Finance and Administration.
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, Lynne Reynolds, income tax administrator for the department, said after the meeting.
Lt. Gov. Tim Griffin told the House tax committee that "states across this country have tax laws, to be frank, that are a lot better than ours."
"Our tax code is a mess from top to bottom in my view, but on this particular point they are beating us," for retired veterans, the Little Rock Republican said.
Military retirees generally have spent 20 years in vocations ranging from logistics to security to avionics, said Griffin, who is a lieutenant colonel in the U.S. Army Reserve.
"They are being served up to the states on a silver platter, and this is a ready-made worker, economic development engine, job creator and a participatory citizen," he said.
"In addition to having natural beauty, in addition to being a great place to live, all that stuff, let's give 'em another reason to make Arkansas their home and show appreciation for their 20 years-plus of service to our country and exempt their income tax."
House Revenue and Taxation Committee Chairman Joe Jett, R-Success, pressed Griffin whether he supports the way the bill would pay for the exemption.
"I'm not the governor. I'm not a legislator. I have my preferences. Most of people know that I might do things a little differently. But I'm not here to try to replace my judgment or the governor's judgment with mine," Griffin said.
"I am here because I believe the good outweighs the bad, and particularly as it relates to this vets' deal."
House Democratic leader Michael John Gray of Augusta questioned why it seems like the bill's cut in the special excise tax levied on soft-drink syrups "is riding the coattails" of the military retiree benefits tax cut.
Senate Revenue and Taxation Committee Chairman Jake Files, R-Fort Smith, said, "There were a lot of different factors that went into putting these things together. This is something that has been talked about in the past and I think this is a way to achieve probably two goals at one time and make it revenue neutral."
According to 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 fiscal 2018 to the Medicaid program to offset the reduction in that tax and $5.9 million in fiscal 2019.
• Levy the 6.5 percent sales-tax rate on candy and soft drinks rather than the reduced sales-tax rate of 1.5 percent on foods to raise $6.9 million in fiscal 2018 and then $13.8 million in fiscal 2019.
• Make unemployment compensation benefits subject to state income taxes to raise $1.6 million in fiscal 2018 and then $3.1 million in fiscal 2019.
• Levy a sales tax on sales of certain digital products, including "digital audio works, digital audio visual works and digital 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 then $2.4 million in fiscal 2019.
Textbooks and instructional materials purchased by public schools are exempt from the sales and use tax.
If public schools opt to purchase the books electronically, they would continue to be exempt from the taxes, said Paul Gehring, the state's assistant revenue commissioner for policy and legal. Textbooks purchased by college students "are subject to tax currently in Arkansas and they would subject to tax under this bill," he said.
Files said the Senate tax committee on Monday will consider an identical bill -- Senate Bill 120 by Sen. Jane English, R-North Little Rock.
The House tax committee also advanced Senate Bill 115 by Senate Republican leader Jim Hendren of Sulphur Springs, which that would implement Hutchinson's tax cut for low-income Arkansans, to the House. The Senate will consider an identical bill -- HB1159 by House Republican leader Mat Pitsch of Fort Smith -- on Monday, while the House will consider SB115 on Monday, according to Hendren and Pitsch.
HB1159 and SB115 would become effective for tax years starting Jan. 1, 2019. The cuts are projected to reduce general revenue by $25.25 million in fiscal 2019, which starts July 1, 2018, and $50.5 million each full year thereafter, according to the finance department.
A Section on 01/27/2017