Will Your Taxes Be Higher or Lower in Arkansas?

Everyone asks me about taxes here in NW Arkansas compared to where they are moving from. It’s a hard question to answer, since it depends on where the person is moving from, and it depends on the situation of the person moving to NW Arkansas. I recently came across an article on the Internet (see below) that said Arkansas ranked in the middle of most to least tax-friendly states. According to this article, an Arkansan’s tax burden is 10.3% of his/her per capita income, which makes Arkansas #27 on the list.

Like most statistics, this list may or may not mean much to any one individual. It does take into consideration property tax, state sales and luxury taxes, state income taxes, fuel taxes, and more. But it does not consider many other types of taxes, such as city and local sales tax, excise tax, and estate and inheritance taxes. Nor has it considered tax credits you may qualify for or the type of income you have.

Last but not least, by its very nature it cannot consider those things that are most important to you and your family. Are you moving to Arkansas to take on a new position? Are you recently retired and looking for an agreeable climate where you can live without treacherous snow and ice for several months of the year? Do you need to move closer to family so you can help them or they can help you? How important is the cultural scene to you? Perhaps you’re more interested in beautiful scenery and good, clean air to breath than Broadway shows. These are all personal decisions that would hold more weight in a decision about where you want to live. Tax-friendliness of a state is much further down on the list for most people.

Different types of income have different tax consequences. Arkansas does not tax Social Security benefits, VA benefits, Workers’ Compensation, Unemployment Compensation, or Railroad Retirement benefits. Arkansas does not tax the first $9,000 of U.S. Military Enlisted compensation. The first $6,000 of U.S. Military Officer’s compensation is also exempt from state income tax.

The first $6,000 received from an employer-sponsored retirement plan and/or from an IRA distribution is exempt from Arkansas income tax. Arkansas also allows a direct credit of $21 against state income tax for everyone. If you are over 65, the credit is doubled. When the above factors are executed, many retirees find they have zero (0) state income tax to pay in Arkansas.

In every state, property taxes will vary according to the city, county, school district, library district, fire district, etc., where the property is located. The rule of thumb that we (realtors) use in Washington and Benton Counties is that property taxes will be slightly less than 1% of the purchase price, less the $300 Homestead Tax credit. This will vary according to municipality (i.e. their mil rate), and homes outside of city limits will have a mil rate less than those in a town.

According to Kiplinger’s Magazine, Arkansans pay very little property tax, $321 per capita. Only residents of Kentucky at $286, New Mexico at $283 and Alabama at $210 pay less. It’s not surprising that residents of two states that do not levy income taxes on earned income do pay considerably higher property taxes. New Jersey residents pay $1,591 per capita, New Hampshire residents pay $1,555 per capita and Texans pay $852.

Homeowners in Arkansas have who are at least 65 years age qualify to have their appraised evaluation capped. This provision helps senior citizens remain in their homes instead of being taxed out of them as evaluations increase. In addition, a property tax credit of up to $300 per year is available on a person’s principal place of residence, regardless of age.

And still another good point to note about Arkansas: it is heir-friendly. There is no estate tax in Arkansas.

The bottom line is that all political entities need revenue to provide services and that money must come from the people. All in all, I think Arkansas is very tax friendly compared to some other areas of the country.


For more information:

Washington and Benton County Property Millage Rates:

http://www.co.benton.ar.us/Administration/BCCollect/index.htm (scroll down and click on Current Millage Rates)
http://www.co.washington.ar.us (click on Information and then on Millage rates)

General Information about Taxes in Arkansas:

http://money.cnn.com/2006/04/10/pf/taxes/taxfriendly_states_2006/index.htm
http://www.bankrate.com/brm/itax/news/20051107a1.asp?caret=21
http://www.bankrate.com/brm/itax/state/state_tax_home.asp
http://www.bankrate.com/brm/itax/news/20051107b1.asp
http://www.retirementliving.com/RLtaxes.html
http://www.keepmedia.com/pubs/KiplingersRetirementReport/2002/07/01/129139?extID=10032&oliID=213
http://www.keepmedia.com/pubs/KiplingersRetirementReport/2001/03/01/128658?ba=a&bi=0&bp=97
http://www.taxadmin.org/fta/rate/tax_stru.html
http://www.forbes.com/free_forbes/2004/0315/171sidebar.html