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Legislative Update - 3.25.19

Highlights from Week 10
It was a short, but busy week at the Capitol, with legislators recessing at close-of-business Wednesday for a short spring break.  Tax policy continues to be a high-profile issue, with bills to collect tax from Internet retailers, and a bill to create an earned income tax credit, while levying a tax on cigarettes and vaping products, both advancing.  Legislators are also making headway on one of the final acts of the session – passage of the Revenue Stabilization Act, which prioritizes the budget.
 
Senate Bill 576 by Sen. Bart Hester (R-Cave Springs) advanced through the Senate Revenue and Tax Committee Wednesday.  It would implement several corporate tax reforms, while also requiring online retailers without a physical presence in the state to begin collecting and remitting sales tax. Requiring collection of this tax would bring in an estimated $20 million annually for the state.  The bill would also extend the period for carrying forward a Net Operating Loss (NOL) for a business.  Currently five years, the bill would phase in an extension to 10 years.  The corporate tax rate would decrease from 6.5 percent to 5.9 percent under the bill.  The measure would also change the way corporate income tax is calculated, to use a single sales factor formula.  Lastly, SB 576 also includes a car wash sales tax exemption, and imposes a car wash water user fee.  The bill is expected to be on the Senate floor Monday.
 
Senate President Pro Tempore Jim Hendren (R-Sulphur Springs) also advanced major tax legislation Wednesday.  The Senate approved a measure creating an earned income tax credit (EITC) to create about $97 million in tax cuts targeted to low-and-moderate income workers, to be funded by a special excise tax on cigarettes and vaping products.  The measure would create a refundable state tax credit increasing the state deduction and eliminate a tax bracket for Arkansans making up to $22,000 per year.  It next heads to the House Revenue and Tax Committee.  The Senate also passed SB 561 by Sen. Hendren, which shifts the administration of the corporate franchise tax from the Secretary of State's office to the Department of Finance.  The bill also requires DFA to report to the legislature before each regular session on the impact of all tax exemptions/credits.
 
Meanwhile, legislators are still expected to advance Governor Hutchinson's plan to reduce cabinet-level agencies from 42 to 15. It has passed the House and will be taken up by the Senate next week.  Members are also still working through proposals for measures to refer to the ballot.  They can refer up to three measures per session and have already voted to refer an extension of the half-cent sales tax for highways.  Other possible referrals include a term limits measure and a measure to reform the initiative process.
 
One of the final acts of the session is to pass the Revenue Stabilization Act, which sets spending priorities for the state budget. Work has begun on that measure, which was filed this week. Members will reconvene on Monday.  The session is set to end April 12 at the latest, but it could wrap in the next couple of weeks. 

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