The Arkansas House Revenue and Taxation Committee on Tuesday endorsed a bill that would cut the state’s top individual income tax rate from 4.9% to 4.7% and the state’s top corporate income tax rate from 5.3% to 5.1%, retroactive to Jan. 1, 2023.
In a voice vote with no audible dissenters, the House committee sent Senate Bill 549 by Sen. Jonathan Dismang, R-Searcy, to the full House of Representatives a day after the bill cleared both the Senate Revenue and Taxation Committee and the Senate. Legislative leaders are aiming to wrap up this year's regular session Friday.
SB549 is the income tax cut bill that would implement an agreement between Republican Gov. Sarah Huckabee Sanders and legislative leaders announced Thursday.
Dismang told the Senate Revenue and Taxation Committee on Monday that his bill is part of the Legislature’s ongoing work to reduce the state’s individual income tax rates, and the Legislature has provided substantial income tax relief to low-income and middle-income taxpayers in previous sessions.
About 1.1 million individual taxpayers with taxable income greater than $24,300 would receive a tax reduction under the bill, according to the state Department of Finance and Administration.
The bill is projected by the state Department of Finance and Administration to reduce state general revenue by $186 million in fiscal 2024 and $124 million in fiscal 2025. The department said the revenue impact assumes that employee withholding would be adjusted by employers on or after June 1, 2023, with payments being received by the state on withholding payments after July 1, 2023, corresponding to the start of fiscal year 2024.
Dismang said the bill would reduce state general revenue more in fiscal 2024 than fiscal 2025 because it is retroactive to Jan. 1, 2023.
The top individual income tax rate of 4.7% would apply to Arkansans having more than $87,000 in net income and to their income of more than $8,800 for tax years starting on or after Jan. 1, 2023, under SB549. That top rate also would apply to Arkansans having net income up to $87,000 and their income of $24,300 to $87,000 for tax years starting on or after Jan. 1, 2023.
SB549 also recalculates the bracket adjustments based on the reduced tax rates to maintain a smooth transition between the standard income tax table and the upper-income tax table, according to the Finance Department. For tax year 2023, individuals with net taxable income of greater than or equal to $87,001 but less than $91,301 will reduce their income tax due by the appropriate bracket adjustment amount, the department said.
The top corporate income tax rate of 5.1% would apply to net income of corporations exceeding $25,000 for tax years starting on or after Jan. 1, 2023.