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Members of the Legislature's tax overhaul task force have indicated they want to study the possibility of repealing the state's corporate franchise tax and property taxes on business inventory.

They also signaled interest in studying other ways of dealing with both taxes. One would be the creation of an income tax credit or deduction equal to the amount of property taxes paid in business inventory, in lieu of repealing those property taxes. They would like to look at figuring out a way to offset the loss of corporate franchise tax revenue in the event that tax is repealed.

During their meeting Thursday, members of the Tax Reform and Relief Legislative Task Force submitted individual lists showing what parts of the state's property tax laws they want to study changing.

Their lists included a study of the possibility of allowing the Arkansas Economic Development Commission to completely abate property taxes to recruit new businesses; moving the Assessment Coordination Department inside the state Department of Finance and Administration; and changing the five-year cycle for property reassessment.

The Tax Foundation, based in Washington, D.C., has recommended eliminating property taxes on business inventory. That would reduce local tax revenue by about $65 million a year, but the state would likely have to make up all or most of that revenue, the Assessment Coordination Department said in a report to the task force.

Arkansas is one of nine states that fully tax inventory as personal property, said Jared Walczak, a senior policy analyst for the Tax Foundation.

But eliminating the property tax on business inventory also would require approval of a constitutional amendment by voters, said Lindsey Bailey, tax counsel for the Association of Arkansas Counties.

One alternative to repealing the inventory tax would be to create a state income tax credit or exemption, the Assessment Coordination Department said.

The state's corporate franchise tax is 0.3 percent of outstanding stock for stock corporations. The minimum tax is $150 a year for stock and limited liability corporations, said Scott Hardin, a spokesman for the finance department.

Corporate franchise taxes are increasingly rare among states but still common in the southeast United States, said Walczak.

The state tax raises about $25 million a year. The first $8 million goes into the state's general fund and the remainder goes into the educational adequacy fund, the finance department reported to the task force.

The potential study ideas submitted by task force members included: reducing the corporate franchise tax to 0.1 percent of outstanding stock; repealing the tax; and repealing or restructuring the tax and implementing an offset to compensate for reduced revenue.

The task force members collectively submitted studies of 10 possible changes to the property tax code on Thursday, a day after the committee approved most of 31 studies of changes to income tax codes.

In 2017, the Legislature created the task force under state law to placate some lawmakers who favor individual income tax rate cuts for people with more than $75,000 a year in taxable income. Republican Gov. Asa Hutchinson told lawmakers he wants to enact a cut for those taxpayers in 2019.

In 2015 and 2017, the Legislature enacted Hutchinson's plans to cut individual income tax rates for people with up to $75,000 a year in taxable income.

The task force is required under state law to issue recommendations by Sept. 1 to the Legislature and governor in advance of the 2019 session starting in January.

"We will try to put together the framework in June," a task force co-chairman, Sen. Jim Hendren, R-Sulphur Springs, told the task force on Thursday.

Mike Preston, executive director of the Economic Development Commission, said the biggest tax barriers to landing a Toyota and Mazda plant in Arkansas, which plans to locate in Huntsville, Ala., included the abatement of property taxes for the plant as well as corporate and individual income taxes.

"I can't tell you how many times we have sat in a boardroom with a CEO and they look at [Arkansas' individual income tax top rate] and said, '6.9 percent in Arkansas, really? ... Are you guys serious? I thought you were in the South.'"

Metro on 05/26/2018

Print Headline: Panel compiles ideas to ease business taxes

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