House Revenue and Taxation Committee

January 26, 2023

 

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• HB 1026: Prohibits local government from levying an income tax
• HB 1143: Standardizing homestead tax exemption for disabled veterans and dependents

 

HB 1026: Prohibits local government from levying an income tax

 

Rep Eaves: Good morning members, everyone in the audience. We have two bills today, House Bill 1026 and House Bill 1143. We’re going to begin, without objection, House Bill 1026, Representative Ray. And I believe you have an amendment. Members, we’re getting ready to pass out the amendment so you can take a look at that. And then if you’re okay with that we’ll need a motion here in a minute to adopt the amendment. Representative Ray, you’re recognized to explain your bill and also then your amendment. 

Rep Ray: You want me to explain the amendment first or?

Rep Eaves: No, you need to explain the bill first and then we’ll get to the amendment. 

Rep Ray: Okay. All right. Thank you, Mr. Chairman and colleagues, for the opportunity to present House Bill 1026. This is a very simple bill. It would prohibit local governments from levying an income tax. Currently, there are no cities or counties in the state of Arkansas that levy an income tax, so we’re considering this bill at a good time when you’re not having to try and put the toothpaste back in the tube so to speak. But even though we don’t have any local income taxes in Arkansas, there are 17 states around the country where they do levy local income taxes. In fact, there are 4,964 taxing jurisdictions around the country that do. Most of these are in Rust Belt states and in the Northeast. The vast majority of them are cities but there’s a smattering of counties and even school districts that levy local income taxes. 

If you’ve never lived in one of these states it may seem a bit surprising because it’s not very common in the South but Iowa, for example, has 280 jurisdictions where they levy a local income tax, Kentucky has 210 such jurisdictions, Ohio and Pennsylvania have substantially more. I think Ohio has almost 850 local jurisdictions that levy an income tax. And I think most of the folks on this committee would agree that as far as taxes go, income taxes are perhaps some of the most economically damaging. They disincentivize work and labor and productivity, all things that we want more of in society, and they present barriers to economic growth.

I think there’s a lot of reasons to support this bill but the main reason in my mind is it’s been the policy of this body for the last eight years to consistently lower and reduce the income tax in our state. And with where we’re headed in the future, I only see that trend continuing as we continue to lower with hopefully the ultimate goal many years from now to phase out the income tax. And so the last thing that we would really want is to go through all that hard work of doing this and then have that tax burden backfilled on the local end where you’d just be shifting the tax burden from the state to the local level. And so that’s the purpose of the bill. 

The purpose of the amendment is just to add an additional section of code that we identified that dealt with local income tax. So it’s just striking an additional section of code that mentions this. 

Rep Eaves: All right, thank you for that. Members, any questions on the bill or the amendment? All right, members seeing no questions, is there anyone in the audience that would like to speak for or against this bill? All right, we have a question for DFA by Representative Jean. Paul, if you wouldn’t mind?

Gehring (DFA): Good morning, Mr. Chair, members of the Committee. Paul Gehring (DFA). 

Rep Eaves: You’re recognized, Representative Jean.

Rep Jean: Thank you, Mr. Chairman. Mr. Gehring, y’all have had time to review the amendment in the bill? 

Gehring (DFA): Representative Jean, we did review the amendment– I’m sorry, the original bill. we did not identify any fiscal impact to the state of Arkansas. So DFA made the decision not to issue a fiscal impact statement on this bill. 

Rep Jean: Well, I wouldn’t worry about the impact statement because I knew there wouldn’t be one but the way it’s written, did you see anything, any problems the way the bill is written?

Gehring (DFA): No, sir. I did not see any problems with the way the bill was written. 

Rep Jean: Okay, thank you. 

Gehring (DFA): Thank you.

Rep Eaves: Thank you, Representative Jean. Members, any other questions of DFA? All right, thank you, Paul. Appreciate you coming down. All right, Representative Ray would you like to make a motion to adopt your amendment?

Rep Ray: I move do pass. Thank you, Mr. Chair. 

Rep Eaves: Yeah, we need to make a motion to adopt the amendment. 

Rep Ray: Sorry. Yes, I move do pass on the amendment. 

Rep Eaves: So we need a motion to adopt the amendment.

Rep Ray: I move to adopt the amendment. 

Rep Eaves: All right, is that a vote as well? All right, members, we have a motion to adopt the amendment, all those in favor say aye. Opposed? All right, Representative Ray, we’re getting this together now finally. Now you can make your motion if you’d like on your bill.

Rep Ray: Thank you, Mr. Chair. I’m closed and I move do pass. 

Rep Eaves: All right. As amended? 

Rep Ray: As amended.

Rep Eaves: All right, we have a motion do pass as amended, all those in favor signify by saying aye. Opposed? Congratulations, your bill has passed. All right, members, that takes us to House Bill 1143, Representative Fite in the room? Members just hold with me just a second, let’s make sure Representative Fite is either not coming or is on her way, so bear with me for one moment.

[silence]

Rep Eaves: All right, members, Representative Fite is on her way. Actually there she is right there. That was quick. All right, Representative Fite, you’re recognized to present House Bill 1143. 

 

HB 1143: Standardizing homestead tax exemption for disabled veterans and dependents

Rep C Fite: Thank you, Mr. Chair and Committee. Sorry, I got held up in Education and it’s still going on. I would like to bring to the table with me Josh Curtis. And I believe we also have some county clerks here with us if I could bring them forward. 

Rep Eaves: Absolutely. 

Rep C Fite: I’m sorry, collectors, not clerks. And I will ask them to introduce themselves to you. 

Curtis: Good morning, Mr. Chairman and Committee. Thank you for your time. I’m here for Representative Fite. I represent the Collectors Association, if there’s any tough questions, I’ll defer to them. 

Talbert: My name is Rebecca Talbert, and I am the Garland County Collector. 

Pennington: I am Lori Pennington, and I’m Ashley County Collector. 

Rep Eaves: All right, thank you. Welcome to the committee. Representative Fite, you’re recognized to present your bill. 

Rep C Fite: Thank you, Mr. Chairman. The title of the bill really tells you all you need to know about this. It is to amend the property tax exemption for disabled veterans, surviving spouses of disabled veterans, and minor dependent children of disabled veterans. And especially we wanted to define homestead. That has been a problem in the past for this particular group and so we felt that clearing up what that means would be very beneficial not only in our county offices but for the veterans themselves. And I’m going to ask Mr. Curtis and our collectors to explain more of our reasoning on that. 

Talbert: In the past, it has not been unified throughout the state on how the collectors have handled the disabled veterans. And we have tried the last few years to rectify that and make sure that we handle all the veterans the same way. And if they move from county to county, they receive the same benefits in each county. So we’re trying to define this so that everybody receives the same homestead so it’s not just if they live inside in a rural area they don’t get their house plus five acres or their house and everything around it so that we know exactly what we’re supposed to exempt for them. 

Rep Eaves: All right, thank you for that. Representative Fite, did you have anything more you wanted to add to that? 

Rep C Fite: Would you like to add something to this? Okay, Josh. 

Curtis: Yeah, as Rebecca said, we’re just trying to clarify, make this more consistent. This is really codifying an AG opinion we got a long time ago dealing with this definition. This definition, there are several homestead definitions in the code but the DAV homestead definition, there wasn’t a homestead definition for this specific code. So we wanted to clarify it and make it consistent where all the collectors are working off the same sheet of music, and all the veterans are getting the exact same benefits, whether it’s in Garland County or Ashley County. 

Rep Eaves: All right, thank you. Members, any questions? Representative Rye, you’re recognized. 

Rep Rye: Yes, sir. Thank you, Mr. Chairman. You know a couple years back we had a homestead property tax that started about 2000 and we had a problem with people switching from one side of the state and having more than one. Is there some kind of a safeguard in this folks that would actually let them know to pull off on one county or one city and pull up on another?

Curtis: Representative Rye, this bill doesn’t address the homestead credit that just regular Arkansans have. This addresses specifically the disabled veterans’ homestead exemption. 

Rep Rye: But what I want to ask you, Mr. Curtis, if you have one let’s just say in Clay County and you move to say Saline County, what do we have in place that would drop off of the first county to the second?

Pennington: In our county when you move into our county, we call the previous county to see what they were exempt on, to see when they moved. And we get a copy of their letter previously from that county if they’re new for our county. And we coordinate with the county they moved from to make sure that they’re not double exempt. 

Rep Rye: That’s a good answer and thank you very much. Thank you, Mr. Chairman.

Rep C Fite: But again this is very narrowly defined. This is specifically for disabled veterans and their spouses and minor dependents.

Rep Eaves: Representative Warren, you’re recognized. 

Rep Warren: Thank you, Mr. Chair. Rebecca, if you would, we talked right before, would you explain what y’all have run into as far as some veterans using part of their property for commercial use? 

Talbert: In here it’s defined that if they’re using it for commercial it is not exempt. We had one in Garland County that had a full trailer park on it. So that means they do not get an exemption on that property. They would pay taxes on the commercial part of their property. 

Rep Eaves: Representative Fite, is that what your amendment – and I know there was a little bit of confusion on the first draft, and did the – I guess your first amendment kind of clear that up?

Rep C Fite: Yes, that’s the purpose of the amendment, and we got it engrossed. So I hope that that would make it a little bit more clear. Sometimes it’s tricky if it’s not engrossed and you’re having to look at the amendment and then look back at the bill.

Rep Eaves: Okay, thank you. Vice Chairman Beaty, you’re recognized.

Rep Beaty Jr: Following up kind of on that definition of commercial purpose, is that defined in your bill, or is it again a loose interpretation of the definition of commercial purpose? How would you define that?

Curtis: Yeah, that’s language that we got from the assessors, and they are familiar with that type of language when they assess property.

Rep Beaty Jr: But is there something specific on what that– could standing timber be considered a commercial purpose?

Curtis: Yes, sir. Thank you, Representative Beaty. It’s from the ACD rules, Assessment Coordination Division rules. And that’s language that they kind of helped us with. 

Rep Beaty Jr: And that incorporates that into this piece of legislation or is it just a standard that the assessors use?

Curtis: It’s a standard, the assessors use the ACD rules.

Rep Beaty Jr: Okay. Thank you. 

Rep Eaves: All right, Representative Brown you’re recognized.

Rep Brown: Thank you, Mr. Chair. Representative Fite, just to be perfectly clear, I’ve read the bill. So if somebody has 300 acres and that’s all contiguous to the house, that’s their homestead but if they use 150 or 200 acres for commercial purposes, that portion of the property is excluded, just the property contiguous to the residence that is not being used for commercial purposes is that correct?

Rep C Fite: That’s correct.

Rep Brown: Thank you. 

Rep Eaves: Thank you, Representative Brown. Representative Rye?

Rep Rye: One more question. If what she is saying is right, Josh, would that have any impact at all?

Curtis: What she said was correct. Yes, sir.

Rep Rye: Yes, sir. Thank you.

Rep Eaves: All right, members, any other questions? 

Rep Wooten: Right here. 

Rep Eaves: All right, Representative Wooten, you’re recognized. 

Rep Wooten: On the green sheet and the revenue impact it states that I guess DFA is uncertain whether a revenue impact to the county property tax collection would result. I’m in favor of the bill but have either one of the county– that are sitting at the end of the table, have you looked at the impact or what are we talking about here?

Talbert: In my county, it will not impact us at all because we already do it this way. Most counties are already doing it and the counties that are not if you have 20 acres or something, that farmland or non-commercial property, you’re paying $30 on that extra land. So it’s not going to be a huge impact.

Rep Wooten: Okay. All right, I was just concerned, Mr. Chairman, about the phrase uncertain. Thank you.

Rep Eaves: Thank you, Representative Wooten. Members, any other questions? All right, thank you. Is there anyone in the audience that would like to speak for the bill or against the bill? Seeing none, Representative Fite, would you like to close for your bill?

Rep C Fite: I am closed for the bill and I’d appreciate a good vote. 

Rep Eaves: All right, thank you for that. Members, what are the wishes of the committee? We have a do pass from Representative Warren and a second. All those in favor signify by saying aye. Opposed? Congratulations, your bill has passed. Thank you.

Rep C Fite: Thank you, Mr. Chairman. Thank you, Committee.

Rep Eaves: All right, members, that’s all we have on the agenda for today. We may do things a little bit different starting next week. As you can see on the agenda, it’s getting pretty full and a lot of those are bills that have a fiscal impact. So we may start putting some of those that were unable to hear this early in session on a deferred list. We’ll eventually be able to pull those back up, hear them, and we may or may not vote on at that time. 

But I need to be able to clean the agenda so that we know what bills we’re actually going to hear and the folks in the audience as well so they’re not showing up just looking at us. So I’ll follow up with you via text or in-person to verify what we’re going to do on that. All right, Representative Beaty, anything? Members, thank you for your work. We are adjourned.