Legislation that would exempt income that taxpayers received through certain federal covid-19 relief programs, including loan forgiveness under the Paycheck Protection Program, from state individual and corporate income taxes zipped through a tax committee Wednesday.
In a voice vote with no dissenters, the Senate Revenue and Taxation Committee recommended Senate approval of House Bill 1361 by Rep. Les Eaves, R-Searcy.
Before the vote, the committee suspended its rules to delay votes on bills with a financial impact until the end of this year's regular session.
"This is a very timely piece of legislation that needs to come out," said the committee chairman, Sen. Bill Sample, R-Hot Springs.
Eaves said 42,433 businesses in Arkansas received $3.3 billion in Paycheck Protection Program loans.
"One of the biggest problems we have right now in Arkansas is lack of conformity" to the federal tax code, Eaves said.
[CORONAVIRUS: Click here for our complete coverage » arkansasonline.com/coronavirus]
"This increases compliance costs for our local businesses, but there is a bigger problem," he said. "If we fail to update our tax code to the current federal tax code, we will end up taxing this federal lifeline to these small businesses."
Eaves said his bill would also exempt income that taxpayers received through U.S. Small Business Administration grants under the Economic Injury Disaster Loan program; emergency financial aid grants for students; subsidies on current Small Business Administration loans; grants for shuttered venture operators; and payments received through the Coronavirus Food Assistance Program.
"I am aware of the fact that some of these businesses may benefit more than others from not taxing [the forgiven loans under the Paycheck Protection Program], but I would contend that is likely more of a question of, should they have been granted PPP loans in the first place, because nearly any business qualified since there were little to no restrictions on who [was] awarded the loans," he said.
Many businesses that were awarded the loans had no way to know if they needed the funds or not during the early days of the pandemic, Eaves said.
Sen. Jonathan Dismang, R-Searcy, who is the Senate sponsor of HB1361, said, "The goal of these funds that were given to businesses was that every dollar be spent primarily focused on maintaining payroll and folks' work."
If enacted, the bill would be effective retroactive to tax years starting on or after Jan. 1, 2019.
The finance department projects the bill would reduce total state general revenue by $33 million in fiscal 2021, which ends June 30, and by $179 million in fiscal 2022, which begins July 1.
Eaves said the collection of these general revenues is not contemplated in the state's current general revenue forecast and budget.
"If we collect this tax money from our struggling businesses, the only thing we can do with it is build a building or put it in a savings account," he said. "It cannot be part of the budget since it is a one-time deal."
During the first seven months of fiscal 2021, net general revenue has exceeded the state's April 2 forecast by $421.8 million, or 12.3%. The April 2 forecast presumed a recession spawned by the covid-19 pandemic.
Dismang, who is a co-chairman of the Joint Budget Committee, said, "Our goal in general is to set aside [surplus] money to help iron anything out.
"My goal on a personal level is to set aside as much of that as possible because I don't think we are through the storm and I think we need to have as much the backstop that we can," he said.
Gov. Asa Hutchinson has proposed setting aside $100 million in surplus funds for the state's long-term reserve fund.
The long-term reserve fund has accumulated $209.9 million, and the governor aims to boost that fund to $420 million by the end of his gubernatorial tenure in January 2023.
Before the bill was endorsed, a committee member, Sen. Larry Teague, D-Nashville, disclosed that his insurance business received a loan through the Paycheck Protection Program and committee members Sens. Ron Caldwell, R-Wynne, and Mark Johnson, R-Ferndale, said they each have a relative who have received loans through the federal program.