Legislation that would phase out the state's soda tax twice fell short of the two-thirds vote required for approval in the Arkansas House of Representatives on Tuesday.
Afterward, state Rep. Lanny Fite, R-Benton, said he plans to ask the House today to again consider approving his House Bill 1546. Gov. Asa Hutchinson supports the bill.
HB1546 requires a two-thirds vote of the House and the Senate because it would reduce and ultimately repeal a state law -- Act 7 of the 2nd Extraordinary Session of 1992 -- that was confirmed by a referendum vote in the 1994 general election, according to the state Department of Finance and Administration.
In its first vote on the bill, the 100-member House voted 64-26, which fell three votes short of the 67 votes required for approval.
Then the House decided to reconsider the measure but voted 66-27, which was one vote short. The House expunged that vote to clear the way for a third attempt later.
Fite told representatives many states have implemented the soft drink tax, and all but Arkansas and West Virginia have eliminated this excess tax on soft drinks.
"The removal of this tax would provide consumers with tax relief" and help the hospitality industry, restaurants and retailers that have suffered during the covid-19 pandemic, he said.
Rep. Deborah Ferguson, D-West Memphis, countered that consumers wouldn't get the benefit of this tax relief.
Rep. Julie Mayberry, R-East End, said, "This is just too risky," because she worried that the reduced soft drink revenue, which goes to the Medicaid trust fund, wouldn't be covered by future growth in its replacement, state general revenue.
The soda tax is levied on the sale of soft drink syrup or simple syrup at the rate of $1.26 per gallon, and bottled soft drinks, powders and base products at the rate of 20.6 cents per gallon, the finance department said. Distributors, manufacturers and wholesalers collect the tax.
HB1546 would provide a mechanism to transfer state general revenue to the Medicaid trust fund in amounts that reflect the projected fiscal impact from the gradual reduction and elimination of the soda tax, the finance department said.
Fite said soda tax cuts would only happen under the bill if there is sufficient growth in sales and use tax general revenue, and the phase-out of the soda tax could take more than three years to happen under the bill. There needs to be at least a year between each rate reduction under the bill, he said.
Total sales and use tax general revenue would have to exceed $2.681 billion for the first rate cut, $2.754 billion for the second rate cut, and $2.83 billion for the final soft drink rate cut under the bill, he said.
If the soft drink rate cuts occur on July 1 in 2023, 2024 and 2025, the bill would authorize a transfer of funds to the Medicaid trust fund -- $9 million in fiscal 2024; $23.4 million in fiscal 2025; $38.2 million in fiscal 2026; and $39.4 million in subsequent fiscal years, according to the finance department.
Also Tuesday, the House Revenue and Taxation Committee recommended several tax cut measures, including:
• HB1555 by Rep. Joe Jett, R-Success, which would allow the state Division of Heritage to issue up to $8 million in historic rehabilitation income tax credits each fiscal year, up from the current limit of $4 million.
• HB1596 by Jett that would allow a specialty or job printing business to be considered a "manufacturer" for the manufacturing machinery and equipment sales tax exemption. The finance department projected the bill will reduce state sales tax revenue by $2.6 million in fiscal 2022 and $4 million in fiscal 2023.
• HB1196 by Rep. Craig Christiansen, R-Bald Knob, which would provide a sales and use tax exemption for sales of water used exclusively in the operation of a poultry farm. The bill is projected by the finance department to reduce state sales tax revenue by $1.8 million in fiscal 2022 and $2.7 million in fiscal 2023.
• HB1314 by Rep. David Hillman, R-Almyra, which would increase certain maximum credits allowed under the Water Resource Conservation and Development Incentive Act. The finance department projects the bill would reduce state tax revenue by $301,000 in fiscal 2022, $603,000 in fiscal 2023 and $905,000 in fiscal 2024.
• HB1157 by Rep. David Tollett, R-Lexa, which would increase an income tax deduction from $250 to $500 per taxpayer for qualified classroom investment expenses by a teacher for a tax year starting on or after Jan. 1, 2021. The bill is projected by the finance department to reduce state general revenue by $237,000 in fiscal 2022.
• HB1054 by Rep. Rick Beck, R-Cedar Ridge, which would extend the "isolated sales" sales and use tax exemption on the sale of tangible personal property, specified digital products or a digital code at a special event to a purchaser if the seller is not an established business or the sale is not made in an established manner. The bill is projected by the finance department to reduce state sales and use taxes by $180,000 in fiscal 2022 and $270,000 in fiscal 2023.