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Winter 2021 Arkansas Tax Digest: Legislative Session & More
With weeks still to go in the legislative session, here is an update on Arkansas tax legislation and other developments covered on the DDH Arkansas Tax & Incentives Update blog over the past months. Arkansas tax legislation update Arkansas's regular legislative session convenes every other year, and the 93rd General Assembly began in mid-January. It is expected to adjourn toward the end of April and then reconvene in the fall for redistricting and perhaps other matters. Much of the major tax legislation is waiting until late in the session to move, particularly given the fiscal uncertainty around the COVID-19 epidemic and federal stimulus. Here is a summary of major items pending or enacted:
Independent Tax Appeals Commission: HB1468 would replace the Arkansas Department of Finance and Administration Office of Hearings & Appeals with an independent Tax Appeals Commission. The bill passed the House 95-0. It is pending in Senate.
Elective entity-level pass-through taxation: Act 362 (HB1209) created an elective entity-level tax regime for pass-through entities. It is intended to help small businesses save on federal taxes by maximizing the SALT deduction. The option is estimated to save Arkansas businesses $50 million or more annually once in effect for tax years beginning in 2022.
Nontaxability of PPP loan forgiveness and other federal COVID-19 aid: Act 248 (HB1361) conformed Arkansas to federal nontaxability of Paycheck Protection Program (PPP) loan forgiveness and certain other aid items provided in the CARES Act and addressed in the federal Consolidated Appropriation(s) Act 2021. The estimated one-time savings to Arkansas taxpayers is $212 million.
Local government disclosure of sales tax rebates and credits: Arkansas cities and counties want more visibility into local sales tax rebates, credits, and refunds administered by the Department of Finance and Administration (DFA). The initial vehicle, SB293, raised taxpayer concerns surrounding confidentiality, administrative burden, and risks of local audits and enforcement. The new, scaled-back local sales tax disclosure bill is SB528, under which DFA would give localities lists of rebate or credit recipients and amounts. The information would be subject to confidentiality requirements.
Remote workforce and mobile workforce: SB484 would reverse DFA's imposition of income tax on out-of-state employees of Arkansas employers, commonly called a "convenience of the employer" rule. It would also adopt the Mobile Workforce State Income Tax Simplification Act, which provides clear day-count safe harbors before employees temporarily present in the state become subject to income tax.
Custom manufacturing and printing exemption: HB1596 would expand the manufacturing machinery and equipment exemption to include custom manufacturing and printing, and it would also expand the resale exemption to include materials that become part of the finished printed product.
Tax credit enhancements: SB480 would fix an issue where economic development income tax credits for nonresident investors are prorated, thus preventing the credit from working as a dollar-for-dollar tax offset as intended. And SB481 would enhance the usefulness of Public Roads Improvements Tax Credits to encourage businesses to contribute to local or state road improvement projects.
There are of course many other tax bills pending, such as proposals to reduce individual income taxes or to cut the sales tax on used cars. If there is a particular issue that requires monitoring, please contact any member of the DDH tax team. Other updates
Franchise tax administration: Arkansas implemented a tax reform intended to consolidate tax administration and collection by moving the franchise tax to DFA. The state has now backtracked over concerns about various implementation issues, and administration returned to the Secretary of State as of March 15. Income tax return extension: Arkansas is following the federal extension of individual and certain other return deadlines to May. Arkansas Ready for Business grant deadlines extended: The Arkansas Economic Development Commission (AEDC) has extended deadlines for incurring and reporting Arkansas Ready for Business grants. Economic development property exempted: Property held by a local government for economic development leasing after the previous lessee business closed was allowed a property tax exemption in City of Little Rock v. Ward. Assessment Coordination Division sovereign immunity dismissal: A narrow view of the Assessment Coordination Division's authority underpinned its dismissal under sovereign immunity from a property tax dispute over mineral interests in Chaney v. Union Producing.