Fayetteville Arkansas, University of Arkansas--Old Main Overview

Fayetteville Arkansas, University of Arkansas--Old Main Overview
Overview of Fayetteville, AR

Monday, February 26, 2007

More Tax Cuts for Arkansans

In addition to the state’s largest tax cut in history (reducing the sales tax on groceries by 50%) more good news arrived this week on a variety of tax cuts. These measures are designed to boost the economy, make Arkansas more attractive to business and retirees who carefully study tax implications before moving to a new state, and help many of our most vulnerable residents.

Increase in Homestead Tax Credit Becomes Law

An increase of $50 in the homestead tax credit was signed into law. Currently, homeowners in Arkansas are eligible for a credit of up to $300 on taxes for their principal residence. The new maximum credit of $350 will become effective with the 2007 assessment year and will appear on property tax bills in 2008.

There are approximately 696,000 homesteads in Arkansas and it is expected that about 538,000 homesteads will we benefit from some or all of the additional $50 tax credit.

The homestead tax credits are financed by a one-half percent sales tax collected by the state, which, in turn, reimburses the counties for the property taxes they did not collect because of the tax credits. According to the state finance department, a $60 million balance was on hand at the end of last year. Governor Beebe has stated, “We were able to determine that we could conservatively and reasonably [increase the credit] and still be sound going into the future.”

Income Tax Cuts for Working Poor Move Closer

It looks like state income tax cuts for low-income people are on the horizon. The House tax committee has endorsed a bill that would exempt approximately 62,000 Arkansans from paying state income tax.

In its current form, the bill would eliminate the following groups from state income tax:

Single people with an annual gross income tax (AGI) of less than $10,200;
Married couples filing jointly with less than two dependents and AGI less than $17,200;
Married couples filing jointly with two or more dependents and AGI less than $20,700;
Head of Household filers with AGI less than $13,700.

Arkansans with income above the federal poverty level but less than 33% above it would receive tax credits to partially offset state income tax. The state finance department estimates 89,000 taxpayers would be eligible for these credits.

This is a step in the right direction. Just imagine a family of four (or more) trying to make ends meet on less than $20,700 a year. If this bill becomes law, it would provide tax relief for people in low-paying jobs and cut the workload at the Department of Revenue at the same time.

A Bill Advances to Equalize Taxes on Military Officers and Enlisted Personnel

Under existing law, enlisted military personnel do not pay state income tax on the first $9,000 of pay. However, officers are taxed on all military pay over $6,000.
The $3,000 difference seems strange to me and apparently to Rep. Sandra Prater, D-Jacksonville, as well. She has introduced a bill that would make the first $9,000 of military pay exempt from state income tax, regardless of rank. The bill passed the House and Senate and has been sent to the Governor.

Reducing Sales Taxes on Utilities Paid by Manufacturers

Bills to reduce the sales tax that manufacturers pay on natural gas and electricity seem to be sailing through the legislature. If signed into law as expected, the sales tax paid on utilities used by manufacturers would decrease from 6% to 4.5% on July 1, 2007. Another scheduled decrease would drop the tax to 4% on July 1, 2008.

State officials say the decreases will reduce state revenue by $20.2 million next fiscal year and $30.5 million the next year.

Perhaps your first reaction to this news might be “What about the taxes I pay on utilities? I’d like to pay less, too.” But the situation bears a closer look.

Arkansas needs to retain the industry it has while at the same time it must recruit more economic development to the state. The 6% sales tax on utilities puts Arkansas at a disadvantage. Most of the neighboring states charge manufacturers lower or even zero sales tax on utilities.

The Arkansas Chamber of Commerce is a strong advocate of this tax cut. If it passes, Arkansas will be in a more favorable position to recruit new employers. Arkansas is still trying to land a huge Toyota plant and there are other possibilities on the horizon.

I say go for it - I’m tired of hearing about the ones that get away, especially now with the recent loss of manufacturing jobs in this area.

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