Tax Reform Task Force Hears from PFM for the First Time

The Arkansas Tax Reform Task Force heard from its selected third-party consultant, PFM Group, for the first time at its meeting today. PFM and the Task Force discussed the process going ahead and also looked at an overview of the Arkansas tax system. PFM's detailed presentation slides are available online.

The meeting began with a discussion of the PFM team and the process going forward. The general plan is for each of the next few Task Force meetings to feature a single tax type. Sales/use taxes and excise taxes are likely to be the first two tax types to be scrutinized, with meetings in November. Income tax and property tax are planned to follow later in the process.

The Task Force and PFM then addressed the overall approach, in considering national rankings, neighboring states' policies, and highlights of states' best practices nationwide. There was some discussion among the legislators as to what value judgments (growth, equity, competitiveness, fairness, etc.) would be the basis of benchmarking and identification of best practices.

As examples of benchmarking, PFM showed legislators comparisons of Advantage Arkansas jobs incentives, well reopening incentives, and coal incentives (presumably repurposed from their Oklahoma incentives study). They also highlighted Arkansas's low ranking in the Pew study of incentives evaluation frameworks. Comparisons of Arkansas overall tax burdens and property tax burdens followed, as well as the state's middling-to-low rankings in the 2017 Tax Foundation Business Tax Climate Index (which were of concern to Senator Hendren, the Task Force Co-Chair). PFM also identified commonalities among other states' tax reform efforts, such as shifting from income tax to sales tax, imposing sales tax on more services, taxing online purchases, income tax apportionment reform, and property tax relief. They also highlighted the North Carolina tax reform experience.

Coming from the meeting, some other items of note:

  • PFM's slide deck identifies an independent tax tribunal as a low-cost way to improve the fairness ranking for Arkansas tax administration, taking the COST scorecard to an A.
  • PFM raised the elimination of the franchise tax as a potential business-friendly simplification.
  • The lead PFM consultant, Randy Bauer, noted that he does not like gross receipts taxes. (Hopefully Arkansas will not seriously consider adopting a gross receipts tax.)
  • As would be expected, there is extensive interest among legislators about state economic nexus and use tax reporting legislative efforts.


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