Recommendations for the Arkansas Tax Reform and Relief Task Force

The Arkansas Tax Reform and Relief Task Force continues its study of overhauling the Arkansas tax code. Over the course of the last several months, the Tax Foundation has provided the task force with advice on reforming the state’s sales, income, property, and excise tax structure. And today, I provided the task force with recommendations on a comprehensive $200 million tax cut package.

My presentation, included below, hit on several key themes. First, Arkansas’s tax code is in need of reform. The state has the 39th best tax climate, according to our State Business Tax Climate Index. Second, the state is falling behind by standing still. A number of Arkansas’s neighbors and competitor states, such as Georgia, Iowa, Missouri, and Kentucky, have done tax reform this year. Finally, I congratulated the task force for making it this far into the process and thanked them for their hard work.

My recommendations focused on current reform options before the task force. While my tax cut package would have differed if I were designing a package from scratch, the task force has a number of strong options before it.

I suggested that the task force make the following reforms:

• Lower the individual income tax top marginal rate to below 6 percent
• Lower the corporate income tax top marginal rate to below 6 percent
• Repeal the state’s throwback rule
• Expand the state’s net operating loss rules to match the new federal rules
• Move to a single sales factor apportionment structure
• Repeal a number of sales tax exemptions
• Repeal the state’s franchise tax
• Repeal the state’s inventory tax

These provisions, in combination, will exceed the task force’s goal of $200 million in net tax relief, so I also provided the task force with advice on how to implement the reforms, while balancing revenue needs. Phasing in reforms and using a tax trigger will allow Arkansas to make the needed improvements to its structure.

If the task force implements the reforms that I’ve outlined, the state would jump from 39th on the State Business Tax Climate Index to 31st.

My entire slide deck is below: