An Arkansas House committee on Thursday advanced a bill that would gradually increase the price of used motor vehicles exempt from the sales tax from $4,000 to $10,000, and another bill that would phase out the soda tax if certain tax collections thresholds are met.
In a voice vote with no dissenters, the House Revenue and Taxation Committee recommended House approval of House Bill 1160 by Rep. John Payton, R-Wilburn.
The bill would exempt from the tax the sale of used motor vehicles with a purchase price of less than $7,500 -- up from the $4,000 threshold, starting Sept. 1. That exemption level would increase to less than $10,000 two years later under the bill.
"I think that it is only reasonable that the state allow ... hardworking, salt-of-the-earth Arkansans to buy these more dependable cars duty free," Payton said.
The state Department of Finance and Administration said the bill would reduce tax collections by $9.5 million in fiscal 2022, $12.7 million in fiscal 2023, $24.4 million in fiscal 2024 and $28.4 million in fiscal 2025.
In a voice vote with a few dissenters, the House tax committee also recommended House approval of House Bill 1546 by Rep. Lanny Fite, R-Benton, which would phase out the soda tax. Gov. Asa Hutchinson supports phasing out that tax.
The tax is levied on the sale of soft drink syrup or simple syrup at the rate of $1.26 per gallon, and bottled soft drinks, powders and base products at the rate of 20.6 cents per gallon, the finance department said.
Distributors, manufacturers and wholesalers collect the tax.
HB1546 would provide a mechanism to transfer state general revenue to the Medicaid trust fund in amounts that reflect the projected fiscal impact from the gradual reduction and elimination of the soft drink tax, the finance department said.
Fite said some people have been concerned about what would happen if there is not growth in general revenue tax collection, so to make sure there are sufficient funds to transfer to the Medicaid trust fund, "we have placed triggers in there and it is dependent on growth."
If the soft drink rate cuts occur on July 1 in 2023, 2024 and 2025, the bill would authorize a transfer of funds to the Medicaid trust fund -- $9 million in fiscal 2024; $23.4 million in fiscal 2025; $38.2 million in fiscal 2026; and $39.4 million in subsequent fiscal years, according to the finance department.
Fite said it could take more than three years to phase out the soft drink tax, and there needs to be at least a year between each rate reduction under the bill.
Total sales and use tax revenue collection would have to exceed $2.681 billion for the first rate cut, $2.754 billion for the second rate cut, and $2.83 billion for the final soft drink rate cut, he said.
Act 141 of 2017, which exempted military retirement benefits from income taxes, also reduced the soda tax. The 2017 law also authorized the transfer of $3 million in general revenue to the Medicaid trust fund in fiscal 2018 to offset the reduction and $5.9 million in fiscal 2019 and subsequent fiscal years, according to the finance department.
With the current legislative session set to recess by the end of the month, House tax committee members have prioritized several tax cuts that would collectively reduce revenue by $18.6 million in fiscal 2022.