ARCPA Legislative Update: Special Session Adjourns
INCOME TAX REDUCTIONS APPROVED
The 93rd Arkansas General Assembly convened Tuesday in its Third Extraordinary Session to consider accelerating income tax reductions adopted last fall and to provide $50 million for school safety grants.
Identical bills were introduced, HB 1002 by Rep. Joe Jett, R-Success, chairman of the House Revenue and Tax committee, with 52 Republican representatives as co-sponsors and SB 1 by Sen. Jonathan Dismang, chairman of the Joint Budget Committee, with 23 Republican senators as co-sponsors. Both bills were heard in their respective Revenue and Tax Committees that afternoon and were given Do Pass recommendations.
Wednesday morning the House passed HB 1002 by a vote of 81 yea and 14 nay. The Senate passed SB 1 by a vote of 29 yea and 5 nay. The bills were then sent to the opposite chambers where they were given Do Pass recommendation by that chamber’s tax committee.
These bills were given final consideration on the House and Senate floors Thursday morning and passed by similar margins as the previous day’s votes.
TAX CUT MEASURE
The bills both:
- Lower the top personal income tax rate to 4.9% effective January 1, 2022
- Lower the top corporate tax rate to 5.3% effective January 1, 2023
- Conform Arkansas law to IRS Section 179 depreciation, which increases the state’s cap from $25,000 to match the federal law’s cap of just over one million dollars.
- Establish a $150 income tax credit for individuals with income up to $87,000 and slides down for incomes up to $101,000.
Both bills accelerate top income tax rate reductions adopted in the Second Extraordinary Session last fall. The fall 2021 bills also reduced the individual tax tables from three to two by combining the lower and middle-income tables, effective January 1, 2022. The new table applies to those with net taxable income up to $84,500 per year. The high-income table applies to those with taxable incomes above $84,500.
The 2021 Acts scheduled reductions in the top individual rate to fall from 5.9% to 5.5% on January 1, 2022; then 5.3% on January 1, 2023; 5.1% on January 1, 2024, and 4.9% in January of 2025. The corporate income tax top rate was scheduled to reduce to 5.7% on January 1, 2023; 5.5% January 1, 2024, and 5.3% January 1, 2025. These reductions would only happen if no funds were transferred out of the Catastrophic Reserve Fund.
In Addition to the tax cut bills, SB 2 by Sen. Missy Irvin, chair of the Senate Education Committee, appropriates $50 million to the Department of Education for school safety grants for fiscal year 2022-2023. The details will be worked out through the Legislative Council following completion of a study. SB 2 followed a little different path to final passage. It was referred to the Joint Budget Committee from the Senate on Tuesday where it received a Do Pass recommendation that afternoon. The Senate passed it Wednesday morning by a vote of 30 to 1 and transmitted it to the House. The House passed the measure on Thursday morning by a vote 94 to 6.
Governor Asa Hutchinson has signed all three bills.
*Update provided by ARCPA. Copyright © 2022 Arkansas Society of Certified Public Accountants.