89th General Assembly - Week 6

The legislative session is nearing the halfway point and 932 bills and joint resolutions have been filed so far. While that sounds like a lot of legislation this is a significantly slower pace than in the previous session and assuming it continues the 89th General Assembly will wind up filing nearly 20% fewer bills this time.

There have been 143 of the 932 bills enacted into law so far. Eighty-nine are Joint Budget Committee bills and represent the 2013-2015 budgets for state agencies and departments. None of the remaining 54 bills represent major business-related legislation and only a few of the Acts have received much in the way of press coverage. By far, the leading headline-grabber was the bill that allowed concealed handguns to be carried inside churches, which is now Act 67.

All the signs are there that the session will begin to consider some of the major business issues of the session soon. The Arkansas Economic Development Commission delivered the official report requesting legislative approval of the $125 million in state support for the Big River Steel project last week. This starts the twenty-day clock for either approval or denial of state support for the $1 billion superproject.

The most anticipated pre-session issue - Medicaid expansion - has seen some movement this week as well. Governor Beebe met with federal officials to discuss a partial expansion of the Medicaid program in Arkansas and Republicans announced the hiring of a consultant to provide information on cost and benefits of expansion.

Finally, the past week saw the final anticipated piece of tax reform legislation filed when Representative Charlie Collins submitted a bill, currently without any details, that will likely propose a reduction in the state's income tax rates. This bill filing might signal a willingness of the General Assembly to begin considering which tax cuts might be feasible and, if so, how much the state can afford to cut.

There are four main tax cut types that seem realistic options for consideration.

Grocery Tax - one of Governor Beebe's goals is to eliminate the state tax on groceries. Since 2006, the state's grocery tax has been reduced from 6% to 1.5%. SB135 would elminate the remaining 1.5% if certain revenue conditions are met and when select state spending on bond payments and other extraordinary items are phased out.

Income Tax - Representative Charlie Collins (R, Washington County) has long advocated for reducing the state's income tax, which kicks in the highest bracket at just $33,200 in income. While the bill, HB1442, is only in shell form at this time, in the past Collins has recommended that the income tax reductions be phased-in based on revenue increases to reduce the impact to the state's current budget. This would require the state to maintain the flat budgets until the entire reduction is enacted, which might be several years depending upon revenue growth.

Agriculture & Manufacturing Taxes - There are nearly ten separate bills seeking to exempt equipment, supplies or utilities from state sales tax. These items range from utilities used in agricultural structures like chicken houses, baling wrap for cotton and timber equipment to utilities and replacement parts for manufacturers. The Chamber endorses eliminating the sales tax on utilities and repair/replacement parts and equipment for manufacturers. More on that below.

Business Taxes - There are two major business tax cuts to be considered this session. The first is a reduction in the capital gains tax assessed on the sale of Arkansas investments and property. A similar bill passed the House in 2011, but did not pass in the Senate. The bill has been refiled and will likely be discussed in detail, although it doesn't have the champion in the current legislature that it has had in the past. The other major business tax cut would double to ten years how long businesses can carryforward prior year losses to offset current profits. Many states have even longer carry-forward policies so Arkansas' current five-year restriction is much too short.

As mentioned above, the Chamber strongly supports two of the tax reductions under consideration and we encourage you to join us in advocating for their passage in the coming weeks.

HB1218 - Eliminates the state sales tax on utilities used by manufacturers. Only one of our surrounding states tax manufacturer's utilities, which places Arkansas at a competitive disadvantage in both recruitment and retention of manufacturers. In order to have a diverse economy, Northwest Arkansas must continue to support and protect its manufacturers by creating an operating environment that allows them to be the most competitive in the world. This bill continues a steady reduction in this tax and improves our ability to recruit and retain jobs.

SB334 - Eliminates the sales tax on parts used to repair or replace equipment used by manufacturers. This reduction is important to retain industry in Northwest Arkansas since many of our local manufacturers not only have competitors from around the world, they also have other facilities in the United States When a company is looking to expand production or make their facilities more efficient we want them to choose their Northwest Arkansas location to improve and expand instead of moving production to somewhere less costly. Reducing the sales tax on repair and replacement parts and equipment gives the state an advantage that might save hundreds if not thousands of existing jobs.

If you want more information on how HB1218 or SB334 might benefit your business please contact Michael@RogersLowell.com. Also, we need your assistance to make sure legislators understand the potential benefits of these bills. Please reply to this email if your business would be positively impacted by a reduction in the tax on utilities and repair/replacement parts.