Yesterday we wrote about a proposal at the Arkansas Legislature to tax passive income of churches. The proposal was among those up for consideration at the legislature’s Tax Reform and Relief Legislative Task Force.
Under Arkansas law, income churches receive from things like interest earned on savings accounts or from the sale or rental of church property is not subject to the state income tax. The proposal before the task force would eliminate this exemption.
Sen. Jim Hendren (R — Gravette) is the senate chairman of the task force. I spoke with Sen. Hendren this morning, and he has assured me the task force has no interest in eliminating churches’ passive income tax exemption.
I am deeply grateful to everyone who contacted their state legislators yesterday to express their concern about this proposal, and I hope our elected officials will continue working to ensure taxes are not increased on churches and charities.
Yesterday we wrote that the legislature’s Tax Reform and Relief Task Force met to discuss proposals to raise the state sales tax on groceries; eliminate the annual sales tax holiday for back-to-school supplies; levy a sales tax on nonprofit hospitals and nursing homes; and cut taxes on new and used cars.
Bad News From the Task Force Meeting
The Arkansas Democrat-Gazette reports the task force voted to further review plans to increase the state grocery tax.
Under the proposal, the legislature would increase the state sales tax on groceries from 1.5% to 6.5% and create an earned income tax credit that would help offset the effect the grocery tax would have low- and moderate-income families.
The task force cannot raise the grocery tax itself, but it can develop a plan to raise the tax and make recommendations to the legislature in 2019.
The task force also agreed to further study a proposal that would eliminate the back-to-school sales tax holiday. That’s bad news.
Good News From the Task Force Meeting
Lawmakers opted to continue reviewing plans to exempt vehicles sold for less than $10,000 from the state sale tax, and decided not to move forward with a proposal to tax sales to nonprofit and charitable hospitals and nursing homes. That’s good news.
The Bottom Line
I’m glad legislators might cut taxes on new and used cars, but it’s troubling that some elected officials want to raise taxes on basic necessities like groceries.
Lawmakers have indicated their goal is to reduce income taxes for top earners as well as low-income families. To do this, some say they need to overhaul — and increase — Arkansas’ sales taxes.
If Arkansas raises taxes on groceries while giving income tax breaks to the poor and the wealthy, that’s going to hurt middle class families who don’t qualify for any tax credits. No one should be penalized for buying bread and milk.
Likewise, eliminating the back-to-school sales tax holiday affects parents with young children. The tax holiday doesn’t exist to help businesses. It’s meant to help families. The tax holiday makes it easier to purchase basic supplies for educating students.
Legislators need to think very carefully before taking up proposals to eliminate the tax breaks or raise taxes on everyday families.
On Wednesday morning the Arkansas Tax Reform and Relief Legislative Task Force met to review proposed changes to the state’s sales tax exemptions.
The task force cannot make any official changes, but it can make recommendations to the Arkansas Legislature ahead of the next legislative session in 2019.
Among the changes under review are an increase in the state grocery tax; repealing sales tax exemptions for nonprofit hospitals and nursing homes; eliminating the state sales tax holiday; and reducing some of the taxes collected on new or used cars.
Bad Idea: Eliminating the Sales Tax Holiday
In 2011 the Arkansas Legislature created a back-to-school sales tax holiday. During the first weekend in August, the state doesn’t collect sales taxes on school supplies, instructional material, and clothing sold for less than $100. Missouri, Tennessee, Oklahoma, Texas, and Louisiana have similar tax holidays.
Family Council supported the sales tax holiday in 2011, because it benefits families — including home school families — shopping for the upcoming school year. Eliminating the state sales tax on school supplies for one weekend is like giving families a 6% – 7% discount as they do their back-to-school shopping.
The task force is considering a proposal to eliminate the tax holiday. Some lawmakers may not feel like the sales tax holiday does much, but a lot of parents would beg to differ.
Bad Idea: Taxing Sales to Nonprofit Hospitals and Nonprofit Nursing Homes
Currently, sales to nonprofit hospitals, sanitariums, and nursing homes are not taxed in Arkansas. In December consultants for the state singled-out these sales tax exemptions, saying they cost the state millions of dollars in revenue.
Many nonprofit hospitals and nursing homes are faith-based. They offer people more than just medication and healthcare, and they may operate on budgets that are so tight they would have to shut their doors if they were taxed at the same rate as corporate healthcare facilities.
The task force is considering a proposal to tax sales to nonprofit hospitals and nonprofit nursing homes. Our state needs to think twice before increasing the tax burden nonprofit hospitals and nursing homes carry.
Bad Idea: Increasing the Grocery Tax
From 2009 – 2013 Family Council supported Governor Beebe’s effort to reduce and ultimately eliminate Arkansas’ sales tax on groceries. People shouldn’t be penalized financially for buying basic necessities like bread and milk.
Currently, groceries in Arkansas are taxed at a reduced rate of 1.5%. However, the Arkansas Tax Reform and Relief Task Force is considering a proposal to impose the full sales tax on groceries — 6.5%.
That means if a family of four buys $100 worth of groceries every week, their sales tax would increase from $1.50 to $6.50.
Over the course of a year, that family will end up paying an extra $260 in taxes — just so they can put food on the table at home. The legislature may be able reduce the impact of these taxes in other ways, but any increase to the state’s grocery tax is going to add financial strain to a lot of households.
Good Idea: Cutting Taxes on New or Used Cars
Family Council supports efforts to reduce the state sales tax on new and used cars, because parents with young children often cannot afford expensive vehicles, and the used car tax makes it harder for them to purchase a safe, reliable car for their family.
From 1997 – 2011, the state did not collect sales tax on used cars sold for less than $2,500.
In 2011 Family Council successfully lobbied lawmakers to cut taxes on used cars. Under that law, taxes are not collected on new or used vehicles sold for less than $4,000.
Now this legislative task force is reviewing a proposal to stop collecting state sales tax on new or used cars sold for less than $10,000. That sounds like a good idea to us!
You can find a full list of the task force’s tax reform proposals here.
If you are concerned about any of these tax proposals, contact your state representative and state senator.
If you need help contacting your legislators, call our office at (501) 375-7000.