LITTLE ROCK, Ark. (AP) -- All taxpayers in Arkansas will see their rates reduced through a $140 million package adopted during this year's session, but the new laws also include a grab bag of breaks for varied interests.
Volunteer firefighters, manufacturers, farmers and armed service members are among the groups to see additional breaks through the dozen tax cut bills that legislators approved and Gov. Mike Beebe signed into law before wrapping up the session last week. The proposals are phased in over time, with the bulk of the cuts not taking effect until July 2015.
"We were looking at things that were job-creators for incentivizing investment or went to directly help those who were in production, whether it's manufacturing, agriculture or other areas," said Sen. Jake Files, R-Fort Smith, who chairs the Senate Revenue and Taxation Committee.
Files' counterpart in the House pitched the package as a way to help spur job creation in the state.
"What we needed to do and what we want to do is put together a program that can help the state of Arkansas help create jobs and reflect a lot of those different elements," House Revenue and Taxation Committee Chairman Rep. Charlie Collins, R-Fayetteville, told lawmakers as he urged them to pass the cuts earlier this month.
The largest of the cuts is a plan to phase in a 0.1 percentage point cut in income taxes for each bracket, a reduction that state officials say eventually benefits all 1.2 million individual income taxpayers in the state. The cut is expected to cost the state $2.5 million in the coming fiscal year, $30.4 million the following year and $55.7 million in the third year.
The next largest cut is a proposal to cut the sales and use taxes manufacturers pay for electricity and natural gas. The cut is expected to cost the state $17 million in the fiscal year that begins July 2014 and $27.4 million the year after that. Under another measure, manufacturers will also receive a reduction in the sales and use taxes for repair and replacement parts. That break is expected to eventually cost the state $7.2 million a year.
About 337,000 taxpayers are expected to claim the standard deduction, which will rise from $2,000 to $2,200 starting in 2015 under a new law that also includes cuts in the state's capital gains taxes. About 68,500 Arkansans are expected to benefit from an increase in the state's exemption on capital gains from 30 percent to 50 percent starting in 2015, according to the Department of Finance and Administration. DFA said 10 or 11 taxpayers in the state will benefit from the law providing a 100 percent exemption for capital gains in excess of $10 million a year.
The tax cut package also included several breaks aimed at farmers. The Arkansas Farm Bureau said it expects 4,100 farmers to benefit from a proposal to exempt the utilities for several types of agricultural structures from sales and use taxes. The state estimates the break will eventually cost $10.57 million a year.
The package also included several other exemptions for farmers, including on timber harvesting equipment, supplies for farm machinery such as twine for baling hay and on utilities used for grain drying and storage facilities.
About 6,400 armed service members are expected to receive a full income tax exemption on their military pay starting next year under a proposal that's eventually estimated to cost the state $7.2 million a year. State officials also estimate that 1,100 volunteer firefighters will claim a deduction on some firefighting equipment, a measure that will cost the state $48,702 a year.
A sales and use tax exemption on the sale of dental appliances will take effect in July 2014 and is expected to cost the state $2.2 million. DFA did not have an estimate on number of dentists or suppliers who would benefit from the exemption.
The size of the tax cut package could grow to $160 million, since it includes a law that allows the state to issue nearly $20 million in tax credits to some businesses.
The reductions won approval at the end of a session where Gov. Mike Beebe initially warned lawmakers there was no room in his proposed budget for additional cuts.
That argument is why Beebe said he proposed cutting the grocery tax from 1.5 percent to 0.125 percent, but only if the state's bond obligations or desegregation payments to three Little Rock area school districts decrease by $35 million over a six-month period. Beebe has said the triggered approach was the only way to ensure the tax would be cut but done in a way that wouldn't hurt state services.
Beebe said he believed the state could afford the reductions over the next two years but has warned lawmakers that there may not be enough revenue growth to pay for the cuts in the third year.
"I think that if their assumptions aren't right in (fiscal year 2016), they've got about $40 million in tax cuts too much," Beebe said. "If their assumptions are right, then it'll be taken care of. If not, they'll have plenty of opportunity to fix it."
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