Tax Reform Task Force Examines Property Taxes

Legislators on the Arkansas Tax Reform and Relief Task Force on December 6th discussed possible changes to property taxes in the Natural State.

Randy Bauer of PFM, the consulting group under contract with the state of Arkansas, began the meeting with a broad overview of recent tax reform efforts across the country. Bauer’s commentary was a continuation of a discussion task force members had with state legislators from Indiana, Kansas, Oklahoma and North Carolina last Tuesday about each of their past tax reform efforts. More coverage of the December 5th  meeting can be found here.

Deanna Yocco of PFM began the discussion on property taxes with a summary of how and what property taxes are used in Arkansas. Dr. Joe Howard, an associate professor of political science at UCA, and Dr. Kim Hoffman, associate professor of political science and director of the Public Administration program at UCA, were cited by PFM for their recent paper on voluntary taxes in Arkansas.

After Yocco’s presentation, task force members heard from local stakeholders at the city, county and school district level about how property taxes are levied and used. Business inventory taxes were much discussed.

According to a report in the Arkansas Democrat-Gazette on December 7th, the business inventory tax raises “about 65 million” annually with $50 million going to public schools and the remainder going to cities, counties and “other forms of local governments.”

From the article:

“Ten states, including Arkansas, tax business inventory and four additional states impose partial taxes, said Randy Bauer, project manager for the task force’s consultant PFM Group Consulting, based in Philadelphia.

“Business inventory taxes are considered burdensome on retail stores and other businesses that store large amounts of merchandise, Bauer told the task force. Business inventory taxes are levied at the local level and can be difficult to estimate, he said.

Arkansas businesses estimate the average value of their inventories for the previous year, and property taxes are based on those assessments, according to state officials.”

Bauer said Arkansas has low property tax rates compared to the rest of the nation. He said:

“The story is property taxes are a significant source of local government revenue. That’s likely to continue. They have advantages and they certainly have disadvantages. States are using a variety of ways to deal with some of the disadvantages particularly with limitations with some also doing forms of exemptions and credits…specific kinds of targeted tax relief. In Arkansas, you’re on the low end of the use of property taxes for local governments. A lot of that is  because of state contributions on the school side and a lot of it is the flexibility you’ve given local governments to apply local sales and use taxes.”

“There’s a trend away from property based taxes. I don’t think it’s ever going to get to the tipping point where property taxes aren’t the largest source of local government revenues across the country. However, there is a trend toward providing other ways for local governments to be able to pay for local services.”

The meeting was the task force’s last one for 2017. It’s next scheduled meeting is 9 a.m. on January 8th.

Sen. Jim Hendren, co-chair of the task force, said the group would in future meetings eventually begin to “consider action items not just education.”

“Inventory taxes seem to be one…while several states around us do it… that is counterproductive and not great tax policy. Those are the sort of things that I’d like to see eventually as we come back and look at each of these tax sectors again for recommendations to consider. What we will have at some point is a meeting to now that we are getting the education behind us…what recommendations do you all have as task force members and what recommendations do our consultants have and maybe some outside groups as well.”

For more on inventory taxes and property taxes in general, check out ACRE Scholar and UCA Assistant Professor Dr. Jeremy Horpedahl and the Tax Foundation’s Nicole Kaeding’s recent post here.