A bill that would enact Gov. Asa Hutchinson's plan to increase the homestead property tax credit from $350 to $375 per parcel failed to clear the Senate Revenue and Taxation Committee on Wednesday.
In a divided voice vote, the eight-member committee declined to recommend approval of House Bill 1321 by Rep. Lanny Fite, R-Benton.
A day earlier, Senate President Pro Tempore Jim Hendren, R-Sulphur Springs, introduced Senate Bill 447 that would increase the tax credit from $350 to $375 and also transfer $8.2 million out of the property tax relief trust fund to the county voting system grant fund by July 1. His bill also would allow for more of the trust funds to be transferred to state general revenue.
Counties are reimbursed for the homestead tax credits through a statewide half-percent sales tax deposited into the tax relief trust fund.
Afterward, Fite said he's "very disappointed" that his bill failed to clear the Senate committee.
[RELATED: Complete Democrat-Gazette coverage of the Arkansas Legislature]
"I just believe it was meant for property tax relief and nothing else," he said, referring to the money in the property tax relief fund.
Afterward, Hendren said he probably will ask the Senate tax committee to approve his legislation next week.
Hutchinson said in a written statement, "I hope there will be a compromise between the House and the Senate, and I'm going to continue to work with both sides in order to reach that compromise." The governor is Hendren's uncle.
The Senate committee also recommended approval of Hendren's Senate Bill 345 to gradually trim the home office tax credit that health insurance companies use to reduce their premium taxes.
HOMESTEAD CREDIT
With no debate, the Senate tax committee balked at recommending approval of HB1321 -- two weeks after the committee took no action on the bill.
"This is part of the governor's [legislative] package," Fite told the Senate committee.
There is a balance of $104 million in the property tax relief trust fund, Fite said. The increase in the tax credit would be effective for assessment years beginning Jan. 1 this year.
The $25 increase is projected to cost the state $12.5 million in calendar year 2020 and then $12.8 million in 2021, the state Department of Finance and Administration said in its legislative impact statement on HB1321. In 2018, 716,525 property owners received tax credits totaling $229.9 million, the department reported.
In 2000, voters approved Amendment 79 to the Arkansas Constitution to create the tax credit.
In 2007, Gov. Mike Beebe, a Democrat, signed legislation raising the credit by $50 to the current $350. Hutchinson took office in 2015 and was re-elected last year.
Under Hendren's SB447, the state's chief fiscal officer would be required to determine each year the amount needed to fund the homestead property tax credits for the next year. When the amount in the trust fund exceeds the amount needed, the state treasurer would make a one-time transfer of about $8.2 million by July 1 of this year to the county voting system grant fund. Other excess revenue in the trust fund would be transferred to the general revenue fund account of the state apportionment fund under SB447.
Afterward, Hendren said the secretary of state's office has a formula to distribute the voting equipment grant funds proportionally to the counties and based on their ability to pay.
"What we have found is, it is going to cost about $13 million for counties -- everyone that doesn't have 'em to get 'em and also to pay back at no more than a 50 percent match those that have already paid for them and got nothing," he said.
Hendren said that having studied the state's taxes for two years, "it is clear that continued efforts to use sales tax to drive down property tax is probably not the best use of those sales tax dollars, so when I start looking for places to fund important needs of the state that I think voting machines are, that's one of the reasonable places to look."
HOME-OFFICE CREDIT
A decades-old law allows for life, health and disability insurers to get home-office credits against their premium taxes. The credits are equal to the noncommissioned salaries and wages of the insurers' Arkansas employees who are paid in connection with their insurance operations.
For health and disability insurers, the home office tax credits may not reduce their premium taxes by more than 80 percent, according to the Insurance Department. For life insurers, the credit may not reduce their premium taxes by more than 70 percent.
In October, the Legislature's tax overhaul task force learned that the tax credits cost the state more than $40 million a year.
Before the Senate committee recommended approval of his SB345, Hendren told the committee that this is one of the tax credits that the task force "had a hard time really seeing that it was providing the value that it is costing the taxpayers. I had considerable discussions with the prime payers or receivers of this tax credit and through those discussions, we ended up with a compromise."
Hendren said SB345 would limit the tax credit to 80 percent of the health insurers' insurance premium taxes and puts in an $18 million cap for any company in 2020.
"Then, the salary credit [limit] drops from 80 percent to 70 percent to 60 percent to 50 percent, so it is phased in over a period of four years and with the agreement of the industry," he said. "If you look at the bottom line, the impact to the taxpayers of Arkansas, instead of having a $43 million credit ...it will reduce to a $27 million credit in year four, so it is about a net of $16 [million] or $17 million less credit for the industry and it keeps us in line with most of the surrounding states."
Calendar
The calendar of public events of the 92nd General Assembly for today, the 46th day of the 2019 regular session.
COMMITTEES
9 a.m. Joint Budget Committee, Room A, Multi-Agency Complex. 10 a.m. House Education Committee, Room 138. 10 a.m. House Judiciary Committee, Room 149. 10 a.m. House Public Health, Welfare and Labor Committee, Room
130.
10 a.m. House Public Transportation Committee, Room B, Multi-Agency Complex.
10 a.m. Senate Agriculture, Forestry and Economic Development Committee, Room 309. 10 a.m. Senate Insurance and Commerce Committee, Room 171.
10 a.m. Senate State Agencies and Governmental Affairs Committee, Old Supreme Court chamber.
30 minutes after adjournment of the Senate, Senate State Agencies and Governmental Affairs Committee, Old Supreme Court chamber.
SENATE
11 a.m. Senate convenes.
HOUSE
1:30 p.m. House convenes.
A Section on 02/28/2019