Jan. 17, 2023
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- DFA discussion
- Appropriation Bills
Rep Jean: All right, members. We’re going to call Joint Budget to order. First item on the agenda is B1. These are reports. B1 requires no action. You have the report in front of you. Did anybody need DFA up here for answering any questions? If not, we’ll move to B2, the Arkansas Securities Department. There is some members that have some questions. If the Securities Department will come to the front table. Senator Stubblefield, was your question for the Securities? Okay. You had questions.
Sen Stubblefield: We can do that later if you want to.
Rep Jean: Okay, but you do have questions for securities?
Sen Stubblefield: I have a question for DFA on the exemptions and discounts. But we can do that later if you want to go ahead.
Rep Jean: All right. We’ll do that, we’ll come back to that.
Sen Stubblefield: Thank you.
Rep Jean: All right. If you’ll identify yourself. Okay.
Tierney (Securities): Good morning. My name is Karyn Tierney with the Arkansas Securities Department. I do consumer services and legislative affairs.
Rep Jean: Okay, welcome. Representative Wooten, you have questions.
Rep Wooten: Thank you, Mr. Chairman. Yes, ma’am. On your attachment, there’s a couple of– I have a couple of, three questions. The first one deals with the $500 fines that are listed here, and then there’s a $100,000 fine. How much or amount of securities were sold by this company, and how did you come up with just a $500 fine?
Tierney (Securities): The $500 fines were violations of the exemption filings. Each one actually details how many violations there were. For example, the first one, the Crystal Resort, HSB, they sold two securities that were unregistered.
Rep Wooten: Okay, how many violations were there?
Tierney (Securities): For each one? On the $100,000 one, that was actually a money services company. It was not a securities company. It was a money transmitter–
Rep Wooten: I’m talking about the fuel company. And I’m not specifically– I’m just pulling them out as an example. How many offenses– or how many people did they sell securities to to be fined $500, just $500? How many people?
Tierney (Securities): That one was just one resident.
Rep Wooten: Just one person?
Tierney (Securities): That is correct.
Rep Wooten: And the others?
Tierney (Securities): It looks like the first one, Crystal Resort, was two. Expert Trading FX was just one resident.
Rep Wooten: Okay.
Tierney (Securities): The next one, Booster Fuels, was one resident. Genghis Remote One was one resident. And then on the next page, Iranic Adelaide, to one resident.
Rep Wooten: Okay. How did we come up with the $100,000 fine for Prime? What made their offense greater than–
Tierney (Securities): They were an unregistered money service company. They did bill pay service to Arkansas consumers. And we looked at the amount of revenue they received in doing the unlicensed money services activity, and we did a basis of 10% of the receipts that they got. So we did 10% of the revenue they received.
Rep Wooten: So how would they know that they need to register to–
Tierney (Securities): They were registered in a number of other states and Arkansas has similar laws so those other states. They should have known. And they had regulatory counsel that should have known as well.
Rep Wooten: So it’s based on a percent of the payroll that they sent into the state that they didn’t register that they were performing that type of business?
Tierney (Securities): That is correct.
Rep Wooten: Okay, all right. Thank you, Mr. Chairman. Thank you.
Rep Jean: Thank you, Representative Wooten. Any other questions for the Securities? Seeing none, you’re excused. Thank you, ma’am.
Tierney (Securities): Thank you.
Rep Jean: We’re going to go back to B1, DFA.
Collins (DFA): Mr. Chairman, I’m Charlie Collins. I’m the commissioner of revenue at DFA, and I’m going to bring up a couple of people. This project that we’re going to talk about was a collaborative effort between our legal, forecast, and a couple of tax units. So if I could have a couple more chairs, please–
Rep Jean: Sure, we need some more chairs.
Collins (DFA): –as we ask the different questions.
Rep Jean: We’ll get you more chairs.
Rep Jean: I guess we’ll start down on the left end. Mr. Gehring, we’ll just go down the table if you’ll identify yourselves, and then we’ll start with the questions.
Gehring (DFA): Thank you, Mr. Chair. Paul Gehring, assistant revenue commissioner, DFA.
Collins (DFA): Charlie Collins, I’m the commissioner of revenue, DFA.
McLaughlin (DFA): Whitney McLaughlin with DFA’s Office of Economic Analysis and Tax Research.
Burns (DFA): Tommy Burns, I’m a fiscal division manager for the income tax section at DFA.
Smith (DFA): Drew Smith, assistant administrator of sales tax with DFA.
Rep Jean: Thank you. Welcome all. We’re going to start. We got several questions. Senator Stubblefield, you are recognized for questions.
DFA: 4 Wheeler Exemptions
Sen Stubblefield: Thank you, Mr. Chairman. Paul, I’ll start with you. I think you know what I’m going to ask you. This deals with the exemption on ATVs that are used on farms. I’ve had a number of farmers that have bought ATVs that I’ve known all my life. They’ve done nothing but farm all their life. They went through all the paperwork. They filled out all the forms they need to fill out, and then all of a sudden they find out they got to go through an advisory board one at a time before they can get approved for these exemptions, these farming exemptions. I bought four-wheelers for over 30 years. Never, never had these kinds of burdens placed on farmers to have to go and buy a four-wheeler you can use on the farm. Would you mind explaining it to us how this all came about and how these extra burdens came about?
Gehring (DFA): Thank you, Senator Stubblefield. So I’ll just give a brief overview. We have an exemption for sales and use tax in the state of Arkansas for agricultural machinery and equipment that’s used exclusively and directly in the agricultural production of food or fiber as a business. And also, as a part of that, we have a recent law change that occurred as a part of the tax reform task force.
Sen Stubblefield: Would you explain that?
Gehring (DFA): Yes, sir. And so previously before this law changed that occurred, when we were going to perform an audit of any type of sales of all-terrain vehicles, what DFA auditors would do is we would go to the actual retailer and review those exemption certificates at the place of business of that ATV retailer and then do it individual reviews to determine if those exemption certificates for a purchase of an ATV was proper under the exemption. The law change that occurred here recently was that now ATV retailers, and only the ATV retailers, are required to submit every month all of their exemption certificates for purposes of the sales of the ATVs under the agricultural exemption. So now an ATV retailer every single month when they send in their monthly reports, they’re also sending to DFA all of their exemption certificates. So now DFA Audit, when we receive those and we review those exemption certificates, there may be an additional inquiry into those exemption certificates to see if that purchase of an ATV qualifies for the exemption. The auditor may look at all of the available information. They may reach out to the purchaser to obtain additional information. Ultimately, the auditor may make a determination that the exemption qualifies – there’s sufficient information that the purchase should be exempt – or the auditor may disallow the exemption. And at that point, the taxpayer is notified in writing that their exemption has been denied by DFA, but they are allowed to go to the Arkansas Tax Appeals Commission, which is a newly created body that’s outside of DFA that is independent under the office– I’m sorry, under the Department of Inspection.
Sen Stubblefield: Was this Tax Commission a part of this new law that was passed?
Gehring (DFA): No, they were passed both recently, but the Tax Appeals Commission was passed in the 2021 session.
Sen Stubblefield: So the last session?
Gehring (DFA): That’s right. The Tax Appeals Commission recently just started receiving these protests, administrative protests, in January of 2023. So the Tax Appeals Commission has three independent commissioners that will, if a farmer or another purchaser made a purchase of an all-terrain vehicle or any other type of agricultural piece of machinery or equipment, and then they can go to the Tax Appeals Commission, and then that independent commissioner would then review and then make its own independent determination if that piece of agricultural equipment or that all-terrain vehicle qualified for the exemption.
Sen Stubblefield: Well, let me tell you what you’ve done because I spent half a day with a retailer in my area talking about this very thing. They are coming in now– people are coming in now to buy a four-wheeler and because they have to go through all this extra paperwork and go through an advisory, one guy’s been talking to different people for three weeks. He owns a cattle farm and a hay farm. That’s all they do. And for him to have to go through all these extra loopholes and to put more burdens on these farmers just to get a tax exemption that we used to get just by signing our name on a yellow piece of paper for years, I just think it’s unfair. And it’s unfair to the retailer on top of that because when you have to go through this advisory board, you don’t just go through the whole board. And besides, they have to drive down here. Is that correct?
Gehring (DFA): So the commission is housed in Little Rock. They have the ability to hold hearings away from the commission.
Sen Stubblefield: And how long does that take?
Gehring (DFA): Well, we haven’t even had a hearing yet before the Tax Appeals Commission. So I’m not sure exactly how long they will take to– but they also can hold the hearings by telephone or virtual teleconference as well. But the commission is brand new. But to give you a little background, under our previous procedures under the tax procedure act, which were under the office of hearings and appeals within DFA, the time periods were certainly shorter, but from DFA’s perspective, we wanted to get the information to either the Tax Appeals Commission as quickly as possible. There are time periods that the legislature prescribed for the parties to file their appeal or their petition, and then for DFA to respond, and then the parties to get a hearing before the Tax Appeals Commission, so. But certainly, there are circumstances where a farmer or purchaser can submit their information. Our goal is to see if we can try to come to a resolution of the matter based upon the information that we have without the need for a hearing. But if there is a need for the hearing, we want to make sure that the taxpayer is afforded a full due process hearing. And then if the Tax Appeals Commission rules against the DFA or the taxpayer at that point, then there’s also a further appeal that can occur to a court where a judge will make a determination if the exemption should be allowed or disallowed.
Sen Stubblefield: Okay. Mr. Chairman, if I could just ask one more question?
Rep Jean: Go ahead.
Sen Stubblefield: What you’ve done is you’ve created a process where 10 farmers come in who qualify for the exemption, and you may have one who’s come in who’s trying to game the system and bought a Hummer to go drive out and check the cows and taking that Hummer off their taxes. There’s got to be an easier and simpler way to do this, looking at their 1099s, looking at their tax returns, without having to go through all these different loopholes and putting these farmers through all this different– I mean, I know, I’m a farmer. We don’t have to get on the phone and talk to DFA for half a day and get nothing done. There’s got to be a simpler way. If we have to do it with legislation, I’m willing to do that. But I think you need to come up with something because I’m getting tired of these farmers calling me that I know are farmers. I’ve known them all my life. And they’re being turned down, their exemption is being turned down because they haven’t talked to all the advisory members. One told me the other day, he said he’s still liked the lead, the head of the advisory board before he could– and this has been going on for two or three months. That’s unnecessary. It’s uncalled for.
Gehring (DFA): And certainly, just to give back to the tax reform task force that the General Assembly convened, they identified this specific area of the law as need for additional or a greater inquiry to make sure that the exemption was being properly taken. They did single out– the tax reform task force and then ultimately the General Assembly approved this recommendation– the ATVs were singled out as the only type of equipment that was subject to this particular type of document process where the retailers would send all of their documents to DFA. So in our processes we are receiving all of these documented claims of exemption and then reviewing them for appropriate to make sure that the exemption qualifies. Certainly, Senator Stubblefield, as you pointed out, as a part of that, we will review not just the exemption claim, but also have a dialog between the DFA and the individual claiming the exemption. We’ll also review the related tax information that the individual has filed such as their schedule F just to get a better idea of their sales of agricultural products, their other expenses, just to make sure that the appropriate review takes place to see if the exemption applies. And also a less recent change, but it’s also very appropriate that has occurred, is that we used to– DFA was commanded by Arkansas law to review exemptions to see if you would qualify beyond a reasonable doubt, which is the most highest standard. That’s been abrogated by the General Assembly. Now an individual that’s claiming an exemption must prove entitlement to the exemption by a preponderance of the evidence. So that’s just like a civil case. But what is also important is that for an exemption claim, the individual has that burden. If they want to claim the benefit of an exemption, they have to show that they’re entitled to the exemption by a preponderance of the evidence. If DFA wants to prove something is taxable, we have to also meet our own burden of showing that it’s taxable by a preponderance of the evidence.
Sen Dismang: If I can just jump in real quick. If we can get Senator Stubblefield a copy of the actual law and a copy of the supporting rules, and then we can work through that and see if there’s anything that needs to be adjusted or changed. See if there needs to be a rule change because of maybe how we’ve interpreted the law or maybe if we just need to outright change the law to simplify the process or whatever needs to happen. Would that be okay, senator?
Sen Stubblefield: Yes, it would, Mr. Chairman, but this whole process sounds to me like– I have some other degree– that you’re guilty until proven innocent. That what this whole thing looked like–
Sen Dismang: What we’ve got to do is make sure we understand what the process is. I don’t have the law in front of me to be able to see how DFA’s interpreted that and promulgated rules and what is a reasonable burden or not burden for the taxpayer to comply with the new law. So what we need to do is just see what it actually says, make sure that DFA is following with the law says. If they’re not, then there’s a rules change. If they are, then that means we need to make a law change. But I would agree. I’ve been involved in some of these discussions too. I understand what you’re saying. But again, I think they believe they’re following what the law stipulates for them to do. And what you’re saying is, the law is terrible, and that means we may need a law change. But I want to look at the law and the rules first before we make that determination.
Collins (DFA): Senator Dismang, I think that’s a fine idea. And in addition to giving you the material, what we’re happy to do is sit down with Senator Stubblefield and/or you or anyone else that’s interested and walk through, here’s what we do with it. So just as one quick example, the latest change that the legislature made were instead of us initiating audits, we are instead tasked by the legislature to review every single purchase. How are we doing that? What are we doing with that? Are we scrutinizing every line? Are we taking exclusive use and farming and looking at it ourselves? And the answer to that is no. On that form, somebody signs, yes, I do it exclusively. And of course, we take their word for it. Then on the next line in the form, what are we doing? And we’re happy to walk through that with you and Senator Stubblefield.
Sen Dismang: Yeah, it sounds like there’s some delay on– I mean, I would just tell you, because I thought they signed a form, that affidavit essentially, it was what was needed, but it sounds like there’s a next step that’s occurring at DFA to verify that the form is actually legitimate, on and on and on until we’re three months into buying a four-wheeler. And if that’s the case, I think there may need to be a law change or, again, just make sure it’s not a rule change. Is that, okay, Senator?
Sen Stubblefield: Yes, it is Mr. Chairman. Thank you.
Rep Jean: Senator Chesterfield, is your question on ATVs and exemption? Okay, let me just go down the list to make sure we stay on this subject first. Senator Hammer, is yours on? No. Senator Johnson is this on ATV exemption? All right. You’re recognized.
Sen M Johnson: I had an individual come to me, he was purchasing a cattle trailer. He has cattle, and he works– outside the cattle business, he has a private job outside of just farming. Would his income disqualify him from taking that credit for that cattle trailer? Because it was disallowed.
Gehring (DFA): Senator Johnson, I’d be happy to look at the individual facts in that matter. I’m just not familiar with them, but I have to also be mindful that these matters are– the taxpayer’s information is confidential. So I’d be happy to take a look in terms of those additional facts that you and I maybe can share with the taxpayer if that’s okay. But certainly, the general exemption provides that machinery or equipment that’s used exclusively and directly in the agricultural production of food or fiber as a business or also food that’s going to be grown and then fed to livestock in processed form may qualify for the exemption. There are other facts that may come into play such as whether or not this individual is engaged in the agricultural production or food or fiber as a business as opposed to maybe a farm that’s not operated with a profit motive. But I think it’s probably most important when we have these inquiries is to look exactly at the facts that were involved. So if possible, I could reach out to you offline and we can maybe discuss it in greater detail because I would like to know what the additional facts are.
Sen M Johnson: So his income outside of that farm could have a bearing on whether that’s exempt or not?
Gehring (DFA): Well, there are certainly– Senator, there is going to be circumstances where an individual operates a commercial farm for profit, and then has other sources of income, perhaps from employment or other businesses that they operate. But what we’re really focused upon is to see what’s the use of the piece of machinery, and is that machinery used on a commercial farm? But if they have other sources of income, that’s really not an area of focus for us.
Sen M Johnson: I don’t know what else you’d use a cattle trailer for, but. Thank you.
Gehring (DFA): We understand.
Rep Jean: Senator Chesterfield, you’re recognized.
Fund balance request
Sen Chesterfield: Thank you, Mr. Chair. Mine is a simple ask. I would request through the Chair that each pot of money that we have, we receive a copy of the balance, what the fund is used for, and the percentage of votes necessary to pass anything out of those particular pots of money.
Rep Jean: Are you talking about fund balances?
Sen Chesterfield: Yes. And we have several pots, and I’m not sure that everybody on this committee knows what those pots of money are.
Sen Dismang: And just to make sure I’ve got clarification. Do you mean–?
Sen Chesterfield: All the funds. The da da da funds. We know we have to have two-thirds for some, simple majority for others.
Sen Dismang: Okay, so restricted reserve, ARPA.
Sen Chesterfield: Right.
Sen Dismang: And then I’m assuming catastrophic. Yeah. Okay. But you’re not talking about the set aside for dumps and all the rest of that stuff? There’s a bunch of fund balances out there that aren’t– does that make sense?
Sen Chesterfield: Yes, sir.
Sen Dismang: Yeah. I mean, there’s a–
Sen Chesterfield: Pots of money that this committee may have to deal with.
Sen Dismang: Okay. Gotcha.
Sen Chesterfield: All right. Thank you very much.
Rep Jean: Senator Hammer, you’re recognized.
Sen Hammer: Thank you, Mr. Chair. On B1, just a couple of questions. I’m looking at the charts with all the numbers and the individual categories. First of all, the ones that are classified as CBE, I read the cover sheet, got the explanation. Do you anticipate that there will ever be a time in the future that those categories will not be classified as CBE because new information will be forthcoming where we could assign a value?
Collins (DFA): Senator, we’re always looking at that. We’re always hopeful that’s going to happen. Obviously, it’s frustrating for us when we can’t find anything that we feel is reliable in order to give you an answer in those areas. I guess the only good news or the silver lining in that is they tend to be the smaller dollar value things, but I understand that when where and how we can get good information, we’ll absolutely do it.
Sen Hammer: How long would you leave them on the list then? I mean, these are you’re projected out for six years, and some of them are the same thing for six years out. What’s the value of leaving them there?
Collins (DFA): The CBE ones?
Sen Hammer: Yes, sir.
Collins (DFA): What we’ve got here is just a standardized approach, and so we treat it all of them the same, even if we didn’t have information. But obviously, we’ll continue to update and review this. And so if there’s some new access to data in the future, we’ll go in and change those and update those with real information.
Projecting the future value of tax cuts
Sen Hammer: Okay, and then the ones that have the little– I don’t know what how to identify it. It would look like there may be negative or ran below expectations. That little symbol– take line 96, vehicles purchased by technical and community colleges. Does that mean that they collected less or explain that if you would, please?
Collins (DFA): The asterisk Senator, you mean, or do you mean the less-than sign?
Sen Hammer: Yes, sir, the less-than sign.
Collins (DFA): So in other words, what that is saying is that somewhere between zero and that number. It’s not an exact estimate, that it’s 0.1, but rather it’s a very small number in that instance.
Sen Hammer: All right, so those should be considered fairly insignificant.
Collins (DFA): Yes, sir. That is correct.
Sen Hammer: Okay. And then my last question is this. Some of the deductions– if I’m interpreting this right– some of the deductions appear to be going up as the years go on. Take, for example, 102: Food ingredients reduced rate at 0.0125. It starts off at 402, and you get over to year 28 and it’s 449. Does that mean they’re receiving a greater tax break as time goes on?
Collins (DFA): So, Senator, you’re talking about the food sales tax reduction. Yes, that incorporates into it the concept that the food prices will be going up over time. I’m not sure what exact inflation expectation that our folks used, but that the food prices will be going up and therefore the value of not paying taxes on it is greater foregone revenue. That’s what that’s implying.
Sen Hammer: Okay. So in the overall scheme of things, when we talk about cutting taxes in other areas, how do we take all of this and make sure that it’s calculated into that discussion if we’re going to be lowering taxes elsewhere? If some of these numbers are trending up, how is that going to impact the other decisions that we may be making?
Collins (DFA): Sir, I would submit to you that the most practical way to use this vis-à-vis those future decisions that you’ll be looking at is to take these and say, I’ve got these exemptions today. If I was to change the exemptions, make them greater or make them less, what would that do to my revenue stream, and then what would that do to the available money I have moving forward? In other words, this stuff is basically baked in our forecasting cake today. So the most appropriate way to think about these vis-à-vis your future tax decisions is to say– and I’m not suggesting this or recommending this by any stretch. But if you said, We’re going to reverse the food sales tax exemption, how much incremental revenue could I expect? And then you could look on that chart, and then that would give you an idea. Obviously, that’s not a recommendation, but that would be one way to look at these. As opposed to one of those tiny exemptions, if you said, If I eliminated that exemption, how much incremental revenue would that give me to perhaps apply to a different tax cut? So what this really does is helps you see where today’s exemptions are in terms of how much money that we’re currently exempting.
Sen Hammer: All right. Could we get– lets say– could we get a total– like down at the bottom under 126, could you assign a total dollar value plus and minus for each one of the columns so we could see how it progresses over the years based on your estimates?
Collins (DFA): Senator, I’ll tell you the reason that we didn’t do that, and the reason that it’s very challenging to do. It’s because of the interaction of several tax cuts. So if you take food taxes, for example, or maybe two or three different tax cuts that affect it, so if you just change one thing, it may be something else is also being double counted. So it’s difficult to say, in composite, it looks like X. Now, what we probably could do if you think this would be helpful is come up with what I’m going to call ranges, so that if this one is overlapping with this one and there’s some double counting of the money because if you cut it here or cut it there, and then we would kind of have ranges, that would give you some notion of what those totals look like. But since so many of these things overlap, it’s difficult to pick the number is 7 for everything combined.
Sen Hammer: I think I would like that because– maybe I’m looking at it wrong, but I think if we’re going to see the amount of deductions going up as the years go over based on inflation or whatever else it is, I’d want to know what that is before we make decisions about other tax cuts. Unless I’m missing it, and you correct me if I’m wrong.
Collins (DFA): No sir, I understand what you’re saying and obviously, you’re not wrong. And what I would just submit to you separately is if you’re thinking about what are we projecting for revenues, that’s a separate exercise. That’s our forecasting group, and those are the folks that are kind of thinking about not just the impact of tax exemptions but, what is the economy doing, what is employment doing, what are all these other things doing. And that’s probably going to be your best read on what we’re expecting in the future on revenue versus just looking at one little subset of what it is. But I’m happy to give you those totals ranges that you’re asking for, of course. If you’d like to see that information, we’ll provide it.
Sen Hammer: I would. Thank you.
Rep Jean: Representative Wooten, you’re recognized.
Fuel exemption notation
Rep Wooten: Thank you, Mr. Chairman. Mr. Collins, on page 3, it looks like to me the largest exemption of all these is for gasoline or motor fuel. Is that $499.1, is that a half a billion dollars?
Collins (DFA): Yes, sir.
Rep Wooten: So what does that– who receives all that exemption?
Collins (DFA): And that’s based on the retail price of gasoline. So essentially, Representative Wooten, this is because we do not have a sales tax on gasoline. As you know, of course, we have different taxes on fuel.
Rep Wooten: That answered my question.
Collins (DFA): I’m sorry.
Rep Wooten: But you’re showing that there’s an exemption because that’s never been the case in the state. Why do we show that as an exemption? There’s never been a sales tax until the diesel, half a cent, but why do we show that as an exemption?
Collins (DFA): Senator, we went through the law, and anything that is exempt from sales tax, even if it–
Rep Wooten: But why is that an exemption when it’s never been given? To me, if you exempt something, it means you taxed it at one time.
Collins (DFA): Oh, I see. Yes, sir. No–
Rep Wooten: We’ve never had a sales tax until the recent one.
Collins (DFA): Yes, sir.
Rep Wooten: That’s never considered as revenue. It has never been considered as revenue to the state.
Collins (DFA): Yes, sir, you’re absolutely right. What I’ll do is I’ll put that one below the line to demonstrate that it’s a different category of thinking.
Rep Wooten: Why do we even include it? We never got it. We never took it. How do you exempt something that you never had or you never were legally to do? I mean, that just doesn’t make any sense.
Collins (DFA): Well, what it does do, Representative Wooten, and I’m not recommending this, too, but if somebody said, We want to look at, should we continue to exempt it, this just makes it clear.
Rep Wooten: But we’re not exempting it. I mean, how can– my point being, Mr. Chairman, if you’ll bear with me. My point is, we’ve never collected sales tax on gasoline.
Collins (DFA): Yes, sir.
Rep Wooten: So why do we even involve that as an exemption? Because the state never had it. An exemption is when you give something up to me that maybe you had collected, and you decided to give an exemption to it. We never have collected sales tax on gasoline. So we’re not giving away a half a billion dollars of taxpayers’ money the way this report reads. Is that not correct? Am I not seeing something?
Collins (DFA): Yes, sir. I think everything you’re saying is absolutely true. If you want me to take it off, I’m comfortable doing that. If you want an explanation for why it’s on there, the explanation is we looked at the laws, and there’s a law that exempts gasoline. So because there’s a law that does that, we included it.
Rep Wooten: That gives a misnomer, and there may be some others on here. And I would think, Mr. Chairman, we need to look at that to get a true reflection of exactly how much are our actual exemptions because we can’t exempt something that we never taxed if that’s correct.
Rep Jean: Representative Wooten, I wasn’t around. You may have been around back in the ’40s and ’50s, but there may have been a law that exempted it and I’m not sure. That’d be a deep research, but I think it’s on the books that these were exempted.
Rep Wooten: That’s fine.
Rep Jean: And that’s why I think they’re doing this on this report.
Rep Wooten: Thank you, Mr. Chairman. Thank you, Mr. Collins.
Collins (DFA): Thank you, Representative.
Rep Jean: Senator Irvin, did you have a question? Hold on. Go ahead.
Sen Irvin: No, just a point of clarification. On page 10 under number 80, it seems to me that the law clearly states that it’s exempt, so that’s why it was included. I just wanted to ask for clarity.
Collins (DFA): Thank you, Senator, for finding that. Yes, ma’am. That’s correct.
Sen Irvin: Okay, it’s number 80 on page 10. Thank you.
Collins (DFA): Thank you, Senator.
Rep Jean: All right, seeing– well, Representative Flowers, you got a question for DFA?
Rep Flowers: Yes, and just for clarification, too. So without these codified exemptions, then there would have been a sales tax without the law that said there wouldn’t be or any other exemption?
Gehring (DFA): Representative Flowers, so what we have is a sales and use tax that applies to all sales of tangible personal property, specific services, and certain digital products. And so the law says that if it’s a tangible personal property, which gasoline would be tangible personal property, it would otherwise be exempt. But because we have a specific exemption in the law for gasoline because we have a separate process for taxing gasoline through an excise tax on motor fuel. Otherwise, if you would go to the gas pump during the day, retailers might change their price throughout the day depending upon what market factors are. It would be impossible for that retailer to collect a specific sales tax at a certain percentage based upon the price of gasoline as it fluctuates throughout the day. And instead, what we have is a cents-per-gallon tax.
Gehring (DFA): So it’s a volumetric tax as opposed to an excise tax. Now, we do have a different additional excise tax on motor fuel and diesel, but it’s based upon an index of what the wholesale price of motor fuel and diesel was over a specific period that occurs in the past. But your point is exactly correct. We have a statute in Arkansas law that says that the sales and use tax will not apply to sales of motor fuel. And it was included in this report because it was a specific exemption that’s provided under Arkansas law in Act 819, which directed DFA to prepare this report. We had to look at every sales tax exemption and every income tax exemption and include the revenue impact, even though that we wouldn’t ordinarily be collecting this sales tax because we collect an excise tax on motor fuel and diesel using a volumetric cents-per-gallon rate.
Rep Flowers: Thank you.
Rep Jean: All right, members. Representative Haak, have you got a question for DFA?
Rep Haak: Sure.
Rep Jean: You’re recognized.
Rep Haak: On the border city exemption, it doesn’t state– I’m from a border city of Siloam Springs, Arkansas. It doesn’t state what border cities are exempt. If someone could give me a list of those, I would appreciate it. Thank you.
Rep Jean: We’ll do that. Thank you.
Rep Haak: Thank you.
Rep Jean: Representative Cavenaugh, do you have a question?
Rep Cavenaugh: Yes, sir. Thank you. My question is going to be dealing with the exemption on the motor vehicle rental business where if it’s a rental fleet you don’t pay your sales tax, you pay it as you rent that out. If y’all could just get me some information, I’d appreciate it. Can you get me the information of how much we’re actually collecting on the rental vehicles? Because I want to compare it to what we’re giving up in exemption, and how much we’re actually collecting on the rental of those vehicles.
Collins (DFA): Yes, ma’am. We will get you that.
Rep Cavenaugh: Thank you.
Rep Jean: Thank you. Seeing no more questions, y’all are excused.
Collins (DFA): Thank you, committee, Mr. Chair.
Rep Jean: All right, members, we’ve got Item B3, which is an item for review. This is the Arkansas State Parks budget and expenses for the year. I’ll give you a minute to look over it. If you’ve got any questions, State Parks is here. If not, not seeing any, this item stands reviewed. We’ll go to B4. This is the Treasury. This is the last six months of the year. The Treasury report is just for your information only. Anybody need the State Treasury up here? If not, we’ve got a couple of bills that we’re going to do today. We’ll go to the House packet first, and Mr. Anderson, you are recognized.
HB 1052 Soybean Promotion Board
Anderson BLR Staff: Thank you, Mr. Chairman. In the House packet, that’s the H in the upper right-hand corner. This lists all the House bills that have been referred to the Joint Budget committee. We have House Bill on page one, House Bill 1052. This is the Soybean Promotion Board. Mr. Chairman, this bill does not have any holds, and it is ready.
Rep Jean: Okay. House Bill 1052. We have a motion. We have a motion and a second. Any discussion? All in favor say aye. Any opposed?
HB 1056 Corn and Grain Sorghum Promotion Board
Anderson BLR Staff: Mr. Chairman on page 2, House Bill 1056, Corn and Grain Sorghum Promotion Board.
Rep Jean: House Bill 1056. Do we have a motion? And a second? Any discussion? All in favor say aye. Any opposed?
HB 1057 Rice and Research Promotion Board
Anderson BLR Staff: House Bill 1057. Rice and Research Promotion Board.
Rep Jean: 1057. We have a motion. Do I have a motion and a second? Any discussion? All in favor say aye. Any opposed?
HB 1058 Wheat Promotion Board
Anderson BLR Staff: The last one in the House packet, House Bill 1058, Wheat Promotion Board.
Rep Jean: 1058. Motion and a second. Any discussion? All in favor say aye. Any opposed? We’ll go to the Senate packet.
SB 10 Catfish Promotion Board
Anderson BLR Staff: Thank you, Mr. Chairman. And that’s in the upper right-hand corner on page 1, Senate Bill 10, Catfish Promotion Board.
Rep Jean: Senate Bill 10. Motion and a second. Any discussion? All in favor say aye. Any opposed?
SB 12 Beef Council
Anderson BLR Staff: Still on page 1, Senate Bill 12, Beef Council.
Rep Jean: Senate Bill 12, got a motion and a second. Any discussion? All in favor say aye. Any opposed?
Anderson BLR Staff: Mr. Chairman, that takes us to page 9 in the–
Rep Jean: We’re going to page 9.
SB 46 Governor’s Legislative Liaisons
Anderson BLR Staff: This is Senate Bill 46. This is for the Office of Governor. This is for supplemental for current year for legislative liaisons. This is drafted due to the Governor’s letter that was adopted last meeting.
Rep Jean: We had the Governor’s letter last week that pays liaisons for this session. Any questions? I have a motion and a second. Any discussion? All in favor say aye. Any opposed? Members, that’s it. Members, you have in front of you the subcommittee roster. Make sure you view it so you know what subcommittee you’re on. It’s also on the website. We will meet at the call of the chair. For the rest of this week, there are no planned meetings, but we may have a call of the chair, so just watch the internet and listen as we adjourn each day if we have a special Budget meeting. We are adjourned. Thank you for your time.