Senate Revenue and Tax

Feb. 8, 2023

 

Sen Dotson Thank you, Mr. Chairman. Members of the committee, this is a concurrent House concurrent resolution that I’m on with a Representative Ray that is just basically to urge Congress to continue the Tax Cut and Jobs Act of 2017, those tax cuts that affected individuals that are going to expire, to encourage Congress to to continue those. So it’s a resolution that will be sent to Congress and has a bunch of whereases in there and and all that good stuff. But I’m sure we’ll try to answer any questions you got.

 

Sen Hickey Any members have any questions on the resolution? Anyone from the audience want to speak for or against? Hearing none, what’s the pleasure of the committee? I got a motion. Do we have a second? Second. All in favor say aye. Any opposed, like sign. Congratulations it’s passed. The next one on the agenda is going to be HB 1026. Senator Payton, are you going to run that? You’re, if you have a handout you want to give to the members, that will be fine. After you do that, you’re recognized to begin.

 

Sen Payton Thank you, Mr. Chair and committee. So House Bill 1026 is not correcting an existing problem. It’s an ounce of prevention. So what I just gave you is a list of U.S. cities that levy an income tax on earnings. And income taxes are one of the most economically damaging of all taxes because they penalize work and income. Arkansas law currently would allow for a city in the state of Arkansas, to pass an income tax, but luckily none of them have. So this bill would have a zero revenue impact. But with the efforts of this General Assembly in the last several years, reducing the statewide income tax and the intentions by Governor Sanders to phase it out and do away with the state income tax, it becomes very tempting for localities to backfill that with taxes of their own. So House Bill 1026 would just simply eliminate sections of code that allow cities and counties, I think, to impose an income tax. I’m ready for any questions.

 

Sen Hickey Members, do you have any questions in regards to this bill? I guess I’ll have one, if that’s okay. Did the Municipal League, did they weigh in on this with neutral or anything or you just haven’t heard anything?

 

Sen Payton I watched the House committee and there was no opposition. Other than that I’m not aware of anybody that has weighed in on it.

 

Sen Hickey Any other questions from the members? Is there anybody from the audience that wants to speak for the bill? Is there anyone here that wants to speak against the bill? Seeing none, you’re recognized to close if you want to.

 

Sen Payton I’m closed. Thank you. I appreciate a good vote.

 

Sen Hickey Members, we have a motion? Okay, We have a motion do pass. We have a second. All in favor, say aye. Any opposed, like sign. Seeing none, congratulations it’s passed. Okay. Representative Fite, I believe you’re up next if you want to run House Bill 1143. My apologies. I didn’t see you out in the audience. And I probably failed a little here at the last couple. If you don’t mind, why don’t you recognize yourselves first.

 

Sen Wallace Senator Dave Wallace, District 19.

 

Rep C Fite Representative Charlene Fite, District 24. Mr. Chairman, I do have some witnesses here with me today. May I bring them to the table?

 

Sen Hickey Yes, ma’am. We may need staff, if we don’t mind to bring some additional chairs if we could, or I can help them do that.

 

Rep C Fite Mr. Chairman, would you like for me to have the witnesses introduce themselves before I proceed?

 

Sen Hickey Yes, ma’am, please.

 

Talbot GCC Rebecca Talbot, Garland County Collector.

 

Pennington ACC Laurie Pennington. Ashley County Collector.

 

Curtis AAC Josh Curtis Association of Arkansas Counties.

 

Sen Hickey Thank you. Representative Fite, Senator Wallace, you’re welcome to go whenever you want.

 

Rep C Fite House Bill one 1143 was brought to me by the Arkansas Collectors Association. This bill defines what a homestead is for our disabled veterans across the state. There are a few definitions of what a homestead is in Arkansas code. However, it was not defined for the disabled veterans property tax exemption. This bill clearly defines what a homestead is and what will be tax exempt. Almost all county collectors across the state are doing this using this definition, but they saw a need to put it in the code so it will be consistent for all disabled veterans across the whole state. Any property owned by the disabled veteran, surviving spouses or minor dependent children will be exempt if the property is contiguous to their principal place of residence. I added an amendment which is embedded to clarify that commercial property will not be exempt and I will ask my witnesses to give further explanation.

 

Talbot GCC We’ve had a few collectors that had different definitions that were kind of handed down from previous administrations. And when a veteran moves from county to county and they expect it to be one way, it’s caused issues for that veteran. So we are trying to get everything consistent across the state so that we all handle these exempt parcels all the same way. Nothing that is used as commercial property can be exempted. For example, I had a gentleman back after Hurricane Katrina, wanted to get some FEMA trailers, put the trailers on his personal property, and then rent the trailers out on his real estate. When we realized what he was doing, he had to take that parcel of his property and make it something different, you know a different parcel. Put the trailers on a different, you know, personal. And he had to pay taxes on those because he was making profit on it. It was commercial, but everything else he could claim as his exemption. So we’re just trying to clarify in the law exactly how we’re supposed to handle it and it be unified across the state.

 

Sen Hickey Okay. Are you finished presenting?

 

Rep C Fite I am, Mr. Chairman.

 

Sen Hickey Okay. Senator Dismang has a question.

 

Sen Dismang And I just want to make sure I follow. I mean, let’s just say there’s a 1000 acres and there’s a house on a 1000 acres, and then there’s the parcel. Are we exempting the full 1000 acres because it’s contiguous?

 

Talbot GCC In my county, we do not have that. If you had 1000 acres, most of the time, you’re going to be using it for farmland or something to that nature. And if you’re doing that, you’re selling a product. So that would be commercial. If you did have 1000 acres and it was all your property and you just lived there, I guess by law you would get that.

 

Sen Dismang Hunting land at this point is pretty popular, right? I mean, and that’s what you see in a lot of rural areas at this point. I mean, my only concern in I think there’s an IRS definition for Homestead, essentially for when you sell your home, you’re only able to asset 40 acres, I think, surrounding the property something along those lines. And the rest of it that’s exempt, you know, from the sale or allows you to be exempt from the proceeds from the sale. But the rest of it, you’d have to pay capital gains on. My concern would only be in get the trailer and a lot and all the rest of that think that’s easy. But when you’re talking about multiple acres that’s used for recreation at that point, that’s something that and I don’t guess it really matters to them, is that really something that we’re trying to exempt. Or are we just trying to say your house and your, you know, 40 acres is exempt because there’s a difference and it may not be a problem today, but it may be a problem at some point in future.

 

Sen Hickey Any other questions?

 

Rep C Fite May I have Mr. Curtis, Did you want to comment on that? If I may may I have my witness comment on that?

 

Sen Hickey Yes.

 

Curtis AAC Thank you, Senator Dismang. We have ran across that and I know legislation’s all about unintended consequences. We have ran across that. Some county collectors have used the definition of 40 acres. Some counties have used ten acres, some if you, one acre. So we’re just we want to clear it up and give the most leeway to the disabled veterans as possible. But we haven’t heard of any disabled veterans having that much property. But you’re right, it could happen.

 

Sen Hickey Well, let me go to Senator Payton, because I’m going to have a question to in a minute.

 

Sen Payton Thank you, Mr. Chair. So my question originally was very close to what Senator Dismang asked. But so if we’re clearing it up and we’re setting a statewide standard and we don’t put a limitation on acreage, then those county collectors would not have the freedom to impose a limit on acreage, would they?

 

Curtis AAC Yeah, that is correct. And let me mention this, Senator Payton. We actually got an AG opinion years ago that said this was the definition that they opined that this was the definition we put in this bill was their AG opinion. So we’re codifying that.

 

Sen Payton And so if I could have a follow up.

 

Sen Hickey Yes, sir.

 

Sen Payton I mean, I understand exactly what Senator Dismang was talking about with the recreation or the hunting or something like that. But let’s say somebody that qualifies for this has a couple of hundred acres. Their dwelling place is there. And obviously, even if you’re not commercial, you’ve got to keep the grass cut and things like that. So they just tell their son, their adult son or family member, you can cut all of the hay and sell it. You know, and I’m, you know, the veterans not running a commercial business. He’s just getting the benefit of the grass being cut. I mean, I can see some loopholes in this. If you have other family members living in dwelling places and have multiple dwelling places on the acreage, but you’re not charging them rent, so to speak. Is that a commercial business?

 

Talbot GCC No, but we do not exempt those. That becomes a parcel all their own and they have to pay. If you have another household on that property and someone else is living there, that is not their home. They and then it becomes a different parcel and that person pays.

 

Sen Payton Well, I understand that that’s the practice. I’m just not sure that that’s going to be allowed once that we codify this language.

 

Talbot GCC I mean, even now with the Homestead credit, as it is, if you have another dwelling on the property, that is, you know that someone lives in, you do not get a credit on that one.

 

Sen Payton So I’d need to see that language to see if it’s very similar or identical to this. Thank you. Thank you, Mr. Chair.

 

Sen Hickey Senator Dismang.

 

Sen Dismang And you can have two houses on one parcel. So, I mean, they’re not going to be necessarily be taxed different. And I think that’s where you enter into a, you’re going to have one more round of questions then, because at this point you’ve allowed the assessor to kind of form an opinion on what should happen there. But let’s just say we have a 40 acre parcel with two houses. How much of the land around the rental house is included and how much is land around the rental house is exempted? Is it the one acre lot that the rental house sits on? Is it five acres around? I mean, there’s a lot of questions. I think if you don’t set, I’m just gonna say it, if you don’t set an acreage limit, I think you’ve got a lot of questions. Another question I would have is. I mean, do you count the rental of farmland as a commercial business because I don’t think that it is. And so someone could buy a farm for the house, live on it, rent it out. They’ve got rental income, but they’re not operating a commercial business and sales or drawing rental income. And I’m not sure that you would ever know the difference on the assessor level. And they’re not assessing equipment, they’re not doing anything else. They’re just drawing a rental check. And again, there is an IRS definition for what a homestead is. So they didn’t find themselves in this exact same position when their exempting the sale of your personal residence.

 

Sen Hickey Senator Wallace, did you…

 

Sen Wallace Let the Senator go first.

 

Sen Hickey Okay. Senator Caldwell.

 

Sen Caldwell Thank you, Mr. Chairman. On page two, line three, if you would amend this the base, which is a real property contiguous to the dwelling under subdivision, whatever this section, if the contiguous property is not being used for commercial property and does not exceed 40 acres, I think would cure our heartburn.

 

Sen Hickey Senator Wallace.

 

Sen Wallace Mr. Chair, I’d like to put this bill down, there’s enough that we need to talk about and talk through.

 

Sen Hickey Okay, before we before we do, any more comments, because Senator Caldwell has made that as a suggestion. I’m not sure that some of the issues that Senator Dismang brought up too, that commercial, I’m not for sure if we need to actually define that a little bit more closely what rental is or if we already have something in code. So I would also ask, in addition to what Senator Caldwell had, the other questions that we take all of that into account, you know, kind of cumulative thing for this amendment.

 

Sen Wallace We’ll get those answers and come back.

 

Sen Hickey And I’m going to go ahead and speak for the committee here. There’s not a person sitting around this table that’s not wanting to get the make the veterans where their house is going to be exempt from this. We just want to make sure we don’t have those unintended consequences, because once we put this into the law, you all can’t do what you may have been doing because then you’re going to be under this. So it’s all good intentions here.

 

Curtis AAC Senator, I think I think the 40 acre, I think we’re just talking real close. I think we’re good with that. The other commercial. Go ahead, sir.

 

Sen Hickey You all get with the drafting attorneys on this and all of these questions. And let’s make sure that we we have it totally nailed out, because with these type of questions, I think we see that there’s probably more than just the acreage. And something else we need to make sure of all of our commercial, we need to make sure that rental of the property is, you know, not included or however we want to set that up, you know, for in that amendment.

 

Curtis AAC Okay.

 

Rep C Fite Thank you.

 

Sen Hickey Yep, good discussion. All right. Well, that’s that’s everything we have on the agenda. Is there any other items that are, need to come before the committee from the members? Seeing none

 

Sen Dismang One question and it’d be a Paul probably in general. So a number of these items on the deferred sheet, I mean, deferred to list aren’t going to have a revenue impact. You have an anticipated timeline on when those are going to get your zero income sheet or zero sheets are going to get released.

 

Sen Hickey Paul, you’re recognized to introduce yourself.

 

Gehring DFA Thank you, Mr. Chair. Members of the committee. Paul Gehring with DFA. So I do have the agenda of the deferred bills in front of me, and I can speak to that. We do have a number of these bills that we are preparing fiscal impacts that we do not anticipate to have a revenue impact and those would be Senate Bill 184 and 185. Those are going to clarify the some procedural issues with the Tax Appeals Commission. We could certainly have those ready before the next meeting that schedules of this committee and then the remaining bills that speak to the sales and use tax exemptions. I’ll just start at the top. So Senate Bill 38, which is the repeal of the throwback rule, and we will be finalizing that fiscal impact statement. Of course, that is going to have a revenue impact. The Senate bill, 80 133 and 34. Those are going to be released here this week. We would anticipate and those would certainly also have a fiscal impact associated with the bill. And we just assigned Senate Bill 198 your your bill, Senator Dismang regarding the the reappraisal schedule in the law. So I’m not aware of any type of revenue impact that would be associated with that particular bill. So, but the remaining bills that are on the deferred list that haven’t had a fiscal impact statement, I anticipate that we would have those out sometime this week.

 

Sen Hickey Thank you, Paul. Any other questions? Seeing none, We’re adjourned.