As of Wednesday, Arkansas' homeowners are eligible for an increase of $25, or $375 per parcel, in their homestead property tax credit, under a law enacted in the Legislature's regular session in 2019.
Act 808 -- which cleared the Legislature as Senate Bill 447 by Sen. Jim Hendren, R-Sulphur Springs -- increased the homestead property tax credit from $350 to $375 per parcel, effective for assessment years beginning on or after Jan. 1, 2019. The tax credit reduces the amount of real property taxes due on a property owner's qualified homestead for each assessment year, according to the state Department of Finance and Administration.
To claim the credit, a property owner registers with the county assessor and provides eligibility for the credit, the department said. Arkansas homeowners will receive the benefit of the increased tax credit when paying their real property taxes in 2020. They are limited to one tax credit per year under state law.
In calendar year 2019, the homestead property tax credit was claimed on 713,877 properties throughout the state and received tax credits totaling $230.2 million, finance department officials said.
The counties with the largest number of properties with tax credits claimed include Pulaski County with 87,791 parcels, Benton County with 59,096, Washington County with 42,617, Saline County with 33,420, Sebastian County with 29,117, Faulkner County with 27,166, Garland County with 26,985, and Craighead County with 21,556, according to finance department figures.
The counties with the fewest number of these properties with tax credits include Calhoun County with 1,585 parcels, Woodruff County with 1,689, Monroe County with 1,763, Lee County with 1,858, and Dallas County with 1,916.
The counties are reimbursed for the credits through a statewide 0.5% sales tax deposited into the property tax relief trust fund.
In the 2000 general election, voters approved Amendment 79 to the Arkansas Constitution to create the tax credit. In response, the Legislature enacted a half-cent sales tax, effective Jan. 1, 2001, and the revenue is credited to the property tax relief trust fund, according to the finance department. The Legislature established the initial homestead property tax credit at $300 per parcel.
In 2007, then-Gov. Mike Beebe, a Democrat, signed legislation approved by the Legislature raising the credit by $50 to $350, after proposing the increase in his successful campaign against then-candidate Asa Hutchinson in 2006.
Hutchinson, who was elected governor in 2014 and took office in January 2015, proposed raising the credit by $25 in April 2018 amid his successful reelection campaign, and the Legislature enacted the increase in the 2019 regular session.
Officials for the Arkansas Association of Counties initially raised the idea of raising the tax credit with the governor based on the accumulated surplus of funds in the state's property tax relief trust fund, J.R. Davis, who was then Hutchinson's spokesman, said in April 2018.
The $25 increase in the homestead property tax credit is projected to cost the state about $12.5 million more in calendar year 2020, the finance department told legislators during the regular session in 2019.
VOTING EQUIPMENT
The surplus in the property tax relief trust fund also is being used to help some counties in Arkansas modernize their voting equipment.
Act 808 transferred $8.2 million from the property tax relief trust fund to the county voting system grant fund in 2019 to help 21 counties buy new voting equipment and reimburse Ashley, Benton and White counties a total of $2 million for half of what they spent to purchase the equipment with their own funds.
So far, 10 counties are in line to get new voting equipment for the March 3 primary election under agreements reached with the secretary of state's office.
They are: Baxter, Drew, Lincoln, Madison, Mississippi, Phillips, Poinsett, Saline, St. Francis and Van Buren counties. That could leave 11 counties using old equipment for the primary election. They are Bradley, Conway, Fulton, Jefferson, Lee, Monroe, Newton, Pulaski, Scott, Searcy and Stone counties.
Act 808 also allows the transfer of excess funds in the property tax relief trust fund to the state's Long-Term Reserve Fund. That fund is used to cover shortfalls in general revenue during economic downturns, and money from that fund is used to ensure that money is available for public education and the effective operation of government. Money from the reserve fund also can be transferred to the Economic Development Superprojects Project Fund.
The state's Long-Term Reserve Fund's balance totals $152.5 million, said Scott Hardin, a spokesman for the state Department of Finance and Administration.
The requirements to utilize the state's Long-Term Reserve Fund are in Arkansas Code Annotated 19-6-486, he said.
During the 2019 regular session, the finance department projected a $24.5 million transfer to the Long-Term Reserve Fund in December 2020 and a $29.5 million transfer to the fund in December 2021.
The finance department also projected $278.9 million in deposits to the property tax relief trust fund in calendar year 2020 and an estimated balance in the fund of $135.7 million on Dec. 31, 2020, after transfers out of the fund.
The department projected $256.4 million in total distributions from the fund in calender year 2021. For that year, the department also projects $285.9 million in deposits to the property tax relief trust fund.
TAX CREDIT SIZE
Asked whether the state could have afforded increasing the homestead property tax credit to $400 per parcel, state Rep. Lanny Fite, R-Benton, said Monday in an interview that he originally proposed increasing the credit to $400 per parcel, with a mechanism to allow for future increases in the credit as the property tax relief trust fund allowed.
But, he said, "the governor didn't feel comfortable going to $400, so we settled at $375."
"The amount of the increase in the homestead tax credit is a compromise reached through the legislative process. I am pleased with the increase and that other priorities were funded as well," Hutchinson said in a written statement Tuesday.
Fite noted that the Senate Revenue and Taxation Committee in 2019 twice declined to recommend Fite's House Bill 1321, which would have increased the homestead tax credit by $25 to $375 per parcel, but also would authorize a study by the House and Senate tax committees on the future use of the property tax relief trust fund.
Hendren, who is the Senate president pro tempore and sponsored what is now Act 808, said Monday in an interview that "there was a lot of back and forth" over increasing the homestead property tax credit.
The $25 increase in the homestead property tax credit was the result of compromise between members of the House and the Senate, he said.
"There is always competing priorities when it comes to cutting taxes," Hendren said.
Hendren said there was some concern about increasing the credit to $400 per parcel rather than $375 per parcel "because of the timing of how the money flows out and into that [property tax relief trust fund]."
"There are huge increases and long dry spells," he said.
"We wanted to be conservative in tax policy," and not put the state budget or the property tax relief trust fund into stress, Hendren said.
House Revenue and Taxation Committee Chairman Joe Jett, R-Success, said the amount of the homestead property tax credit increase is due to a political compromise between the House and Senate amid wide-ranging negotiations about various tax cut measures.
There were some lawmakers who didn't want to increase the credit, "so we compromised at $375," he said.
"If Lanny and I had our way, we would have took it to $400," Jett said.
Fite said he is prepared to file a bill in the 2021 regular session that would stop the transfer of property tax relief trust fund money to the Long-Term Reserve Fund and either increase the homestead property tax credit to $400 per parcel or create a mechanism to raise the tax credit in the future.
A Section on 01/02/2020