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Arkansas’s Tax Code Gets an Update

By Caleb Taylor

What were the major tax reforms passed by Arkansas legislators during the 2019 session?

ACRE Scholar and UCA Assistant Professor of Economics Jeremy Horpedahl and the Tax Foundation’s Vice President of Federal and Special Projects Nicole Kaeding outlined the recent “series of tax reforms to improve the competitiveness of the state’s tax code” in the Natural State in an article published on April 11th for the Tax Foundation.

The reforms encompass various parts of Arkansas’s tax code including the individual income tax, the corporate income tax and sales tax.

Reforms mentioned by Horpedahl and Kaeding include:

  • Dropping the corporate income tax rate from 6.5 percent to 6.2 percent in 2021, followed by another decrease to 5.9 percent in 2022.
  • Changing the apportionment factor from a double-weighted sales approach to a single-sales factor, which will favor businesses with a physical location in Arkansas compared with the current formula.
  • Extending the net operating loss carryforward period from five years to 10 years.
  • Requiring remote collection by sellers with more than $100,000 in sales or 200 transactions.
  • Cutting the top income tax rate from 6.9 percent to 5.9 percent in 2021 and consolidating the six brackets into three (although the three sets of brackets based on income level will remain).

Other reforms include administrative changes to the franchise tax, a gas tax increase to fund infrastructure, and a tax expenditure review that requires the Department of Finance and Administration to prepare biennial reports about the cost, distribution and impact of each tax expenditure.

Horpedahl and Kaeding said:

Many of these recommendations come directly from our 2016 book on the state’s tax code as well as our frequent testimony to the Arkansas Tax Reform and Relief Task Force. Both authors presented on multiple occasions to guide the thinking of the task force as it considered tax reform proposals in Arkansas. Arkansas’s diligent study of the issue has paid off with comprehensive tax reform in the Natural State.”

 

You can read their full post over at the Tax Foundation here.

For more of ACRE’s work on taxes, check out the below links:

The Road Map to Tax Reform in Arkansas

Lessons From Other States Tax Reform Attempts

More on State Taxes and Spending