Advocates for a proposal to eliminate state income taxes on veterans' retirement and survivor pay say Arkansas taxes ex-service members at higher rates than any of the surrounding states.
Cutting those taxes will help Arkansas attract more young, retiring veterans to the workforce, legislators were told Wednesday.
"We are at a distinct disadvantage at attracting the very people we need to attract to our state," said Rep. Charlene Fite, R-Van Buren. "They are moving to Texas; they are moving to Missouri and they are moving to Tennessee. They are not moving to Arkansas."
Fite shared the results of a study on her proposal to eliminate state income taxes on veterans benefits at a joint meeting of the House Committee on Aging, Children, Youth, Legislative and Military Affairs and the Senate Children and Youth Committee, which also oversees military matters.
The study by the Legislative Research Bureau did not include a price tag for the proposal because the bureau doesn't have access to veterans' tax data, said Richard Wilson, assistant director of research with the bureau.
In 2013, the Department of Finance and Administration estimated that it would cost $17 million annually to exempt the first $40,000 in veterans' survivor and retirement benefits from state income taxes.
"Assuming that some retirees do better than that, $17 million would be a conservative estimate for the impact of this proposal," Wilson said.
Advocates argued that the measure would add more than the $17 million back into the state's economy by attracting highly skilled veterans who would start businesses, buy homes and send children to college.
"We're talking about 38- to 44-year-olds predominantly. They retire from the Little Rock Air Force Base, and they're leaving town pretty much as soon as they can," said retired Air Force Col. Don Berry, a member of the Arkansas Veterans Coalition who testified Wednesday.
"If you're thinking about relocating, and there's a 7 percent income tax hit, the only reason you're stopping in Arkansas is family or you have a flat tire. Basically with 2½ hours and half a tank of gas, you can give yourself a 7 percent pay raise overnight."
According to the legislative report, Arkansas is ranked 48th among states for attracting working-age military veterans based on an actuarial study done in 2013 by the Department of Defense.
Arkansas now offers the same income-tax exemption for military retirement benefits that all Arkansans receive on income. There is no income tax on the first $6,000 of income under state law. Fourteen other states also offer no specific income-tax exemption for military retirement or survivor benefits.
Nearby states, however, are offering various levels of income-tax exemptions. Texas and Tennessee do not have any income tax. Louisiana, Kansas, Illinois, Alabama and Mississippi offer a 100 percent income-tax exemption for military retirement benefits. All but Louisiana exempt veterans survivor benefits from income tax.
Missouri, which the study said was Arkansas' biggest competitor in attracting retired veterans, phased in a 100 percent income-tax exemption that will be in effect for the 2016 tax year.
Of the two nearby states that levy income tax on veterans benefits, Kentucky exempts the first $41,000 in annual retirement benefits but does not exempt survivor benefits. Oklahoma offers an exemption from income tax not to exceed the greater of either 75 percent of those benefits or $10,000.
Fite said she plans to introduce legislation in 2015 to offer a state income-tax exemption on military retirement and survivor benefits. Similar efforts have failed, including the 2013 bill that would have exempted up to $40,000 in retirement and survivor benefits.
In addition to tax breaks, veterans' advocates hope the state can offer better educational benefits to veterans.
Department of Higher Education Director Shane Broadway gave a short presentation to the committees Wednesday updating them on an initiative to offer in-state tuition to any veteran using the GI Bill to go to public universities in Arkansas.
A federal law passed last month requires public schools that receive GI benefits to offer in-state tuition rates to veterans and dependents, regardless of their home states.
Broadway said the department was planning to push legislation to provide in-state tuition to all veterans in the 2015 session before the federal legislation passed. He said several public universities already offer in-state tuition for veterans including the University of Arkansas at Little Rock, which began the practice this fall.
Broadway said the new federal provision requires public universities to comply by July 1, 2015.
He said some of the state's universities will lose money on the legislation, and he hopes to return with a solid estimate of that financial impact before the session.
A section on 09/11/2014