Arkansas Tax Reform Task Force Interim Report Summarizes Studies and Analysis to Date

The Arkansas Tax Reform and Relief Legislative Task Force's Interim Report (copy available here) was submitted by outside consultant PFM Group over the holidays. The Interim Report largely summarizes the substance of the Task Force's meetings to date and presents limited, high-level recommendations.

The Interim Report was required under Acts 78 and 79 of 2017, which created the Task Force. (The report technically was required by December 1, 2017.) The final report will be due by September 1, 2018. The way that the Task Force has played out in practice, the Interim Report seems premature: The Task Force is midway through the educational part of its agenda and has not yet really studied income taxes or tax incentives. Besides the introduction and conclusion, the structure of the Interim Report basically follows the agendas of the Task Force meetings so far: State Tax Structure Overview, Sales and Use Taxes, Excise Taxes, Property Taxes, and a comparison of Recent State Tax Actions. Most of the Interim Report discussion summarizes and synthesizes information previously presented to the Task Force.

For sales and use taxes, the Interim Report suggests base broadening by eliminating exemptions and by taxing additional services. The Interim Report offers the possibility that other forms of tax relief, like an income tax credit, could offset the regressivity of expanding the sales tax base. The Interim Report also highlights the importance of increased compliance efforts and tools to close the tax gap on sales and use taxes.

For excise taxes, the Interim Report notes that Arkansas excise taxes and excise tax rates are broadly in line with regional trends. It identifies hotel occupancy taxes as being below regional trends and potentially eligible for increased rates. It also identifies new commerce activities such as ride-sharing and nontraditional short-term occupancy as being potential subjects of new or extended excise taxes.

For property taxes, the Interim Report highlights nonprofit charitable exemptions as an area of interest. It suggests limiting local government powers to provide property tax exemptions. It also identifies property-related taxes like the franchise tax, the inventory property tax, and the real estate transfer tax for reduction or elimination. 

The final Summary and Next Steps are relatively anodyne. The Interim Report rehashes the policy conclusions and suggestions for sales/use, excise, and property taxes. In terms of next steps, the Task Force will continue its studies with topics of (1) individual and corporate income taxes, (2) federal tax changes and their impact on the state, (3) other miscellaneous taxes like telecom taxes and severance taxes, and (4) tax incentives. Once studies are complete, likely in the early spring after the fiscal session, the Task Force will begin to focus on substantive policy options and recommendations.

The Task Force will meet next Monday, January 8, to study income tax issues.

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