House Revenue & Taxation Committee
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Bills discussed (4)
| Bill | Title | Sponsor | Status |
|---|---|---|---|
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HB1206
· 4 mentions in chapter, transcript
Matched: “HB1206”
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Pre-2017 bill | ||
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HB1039
· 1 mention in transcript
Matched: “…ight if we go to our agenda the first bill on the agenda is HB 1039 which will pass over 1191 we were going to have a special o…”
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Pre-2017 bill | ||
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SB212
· 1 mention in chapter
Matched: “SB212”
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Pre-2017 bill | ||
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SB254
· 1 mention in chapter
Matched: “SB254”
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Pre-2017 bill |
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Speaker 1
0:00
Mr. Chairman you recognize for not having my seat members today we've got students for success from my district as well as my colleague mr. house some fine students from Pulaski Technical College along with Ed Nelson and mr. Palmer as well as my my dear friend from college days Richard Moss I'd like for him to please be recognized thank you mr. chairman
thank you and thank you folks for joining us today we
really appreciate it all right if we go to our agenda the first bill on the agenda is HB 1039 which will pass over 1191 we were going to have a special order but representative hammer's doing some work on that so we're going to pass over that and the next bill on the agenda is House Bill 1206 representative Lowry you're recognized to present your bill
Representative Mark Lowery
Unverified
1:04
thank you mr. chairman if it would be allowable I'd like to have a gentleman that has signed up to provide testimony sit with me as we present this bill
representative Lowry do you have an amendment that you're intending to introduce yes there is an
Representative Mark Lowery
Unverified
1:20
amendment that should be on your tablets just clarifies a little bit of language and it is before you and this
is your own amendment yes it is I asked for can I can I get a motion okay all in favor any
Representative Mark Lowery
Unverified
1:37
opposed the amendment passes okay mr. chairman with your permission I'd like to ask mr. Art Chartrand to join me to be able to help with answering any of the tough questions that I'm sure that you're going to direct yes of
Art Chartrand
Unverified
2:01
course please state your name and who you're with
Representative Nate Bell
Unverified
2:06
for the record there we go my name is Art Chartrand C h a r t r and e I'm counsel to the
Home Service Contract Association okay mr.
Representative Mark Lowery
Unverified
2:17
chairman and committee members House bill 1206 deals with an issue related to home service contracts and this this would be situation where if you buy an appliance at say a Best Buy I think it's even been brought up to me by the folks with the grocers and retail merchants they might apply at Home Depot some type of product that you've bought an appliance that you're not going to just load up in the back of your truck or the back of your
car to take it in for repair, that the service would be done at your home. And the contract is paid for up front, sales tax is collected up front on that contract, and then the consumer is expected that when there is a repair and they call the repair shop that they would pay a $60 deductible. Mr. Chartrand will provide some testimony just to let you know about the background of this, but at this particular point, according to the information he's provided, I'm going to try to not use too many of his talking points, but there are only seven states in
the United States that even collect tax on the front end, on the service contract. And according to information, and I'll let him fully verify this, that in the state of Arkansas, for 40 years, that has been the tax treatment of taxing it up front, but not taxing it on the tail end however there have been recent attempts to go to you know say to a small mom-and-pop repair shop and we have a representative here that from one of those that would talk to you about that that he has been
pressed to start collecting sales tax on the $60 deductible and that has been totally out of nature with what has been the pattern and it certainly is inconsistent with what is done in every other state in terms of taxing it upon the contract and then also taxing it upon the deductible if you don't mind I would like to kind of segue now over to mr. chartran and let him provide some more information if that is permissible of course thank you very much
Representative Nate Bell
Unverified
4:22
representative Lowry mr. chairman I just want to emphasize up front HB 1206 is not a new tax it doesn't repeal any existing tax it's simply in our view a restatement of the current law it's been in place in Arkansas for 40 years it's only this last summer we discovered and I think your DFA discovered that there may be some other way to reach back into the transaction to get more tax money out of it the fact is we pay 6% sales tax when we sell our contracts all day long as representative Lowry indicated states either do this one way or the
other they tax us 100% upfront and no no tax when the work is performed or they do with the opposite Arkansas taxes upfront that means there is no tax later when the work is performed the fact is this trade service fee all it is is the first $60 of the work of the repair work that's being that takes place so we are being painful six percent tax upfront there shouldn't be any tax later and all this bill does is reaffirmed that that's the status quo of the law that's the way
everybody's understood the law for 40 years it's never been collected from us it's never been collected from our contractors so the fiscal impact of this bill is zero you've never collected this tax no one ever thought it was due so you are collecting now twice the sales tax that most states collect all we're saying is treat us like everybody else you're gonna collect it up front don't tax it again when the work is to be performed the DFO's DFA's own rules state that you don't tax work when it's later to be performed because you've
already collected the tax upfront that's as simple as it is it's really not more of a complex issue than that it's we're just trying to clarify the existing law you're not going to
Representative Mark Lowery
Unverified
6:14
lose a dime by adopting this and if I may in terms of clarifying you have a fiscal impact study in front of your statement that indicates that there is a loss of revenue as a matter of fact you may have a revised one today because the amendment was placed on on the bill this morning because there there seemed to be a understanding by the Department of DFA
that this would also apply to auto warranties that was never the intention so we've put language on there that specifically states that this is related to home service contracts now that's what's brought about the fifth the second fiscal impact statement that I believe that you're provided with that brings it down closer to a hundred thousand dollars but again even that number is based on gathering information from mr. Char transnational Association on how many contracts are in force and how many repairs per
contract are done that was the only way that that information was able to be attained so if it was something that was already being collected that information would have been available without having to get information from the National Association so our position would be that this is a zero impact that if it is 120,000 it's a hundred twenty thousand of potential future revenue and that's really not what fiscal impact covers it covers what's collected now and what we stand to lose and I guess at this point I would be open to questions
which I probably would very gracefully turn over to Mr. Chartrand. Representative Kerr,
you're recognized for a question. Thank you, Mr. Chairman. Okay, is this not considered premium? This is not insurance premium? The state of Arkansas has declared this is not insurance,
so it's not subject to premium tax. That sure is strange
because I know a lot of insurance agents
Representative Nate Bell
Unverified
8:09
who sell it. Actually, in this state, insurance agents do not sell home service contracts.
These are typically sold in conjunction with the sale of a home. A real estate agent helps effectuate the sale. That's about two-thirds of all sales. About a third are sold directly to consumers. We don't sell through insurance agents.
Okay. We're really talking about like an American Home Shield
Representative Nate Bell
Unverified
8:31
contract? American Home Shield, Old Republic, First American. These are whole homes service contracts. Traditionally, they've always been sold in conjunction with the sale of a home. Arkansas some years ago decided to go ahead and tax these sales tax them up
the front and we pay that all day long okay so we're taxing the cost normally what we would do and and correct me if I'm wrong normally what we would do we would tax the the cost okay or the benefit and and what we're trying to do is we're trying to tax both is that correct that would be my opinion yes sir okay well I think we need to do one or the other not
Representative Nate Bell
Unverified
9:16
both I mean that's that's I would say no other state I've been fortunate to be in every state capital in this country and testify in different bills more in the last few on sales tax issues yes it's a high interest every nobody taxes both sides all
the proper time mr. chairman are there any other questions seeing none is there anyone that would like to speak against the bill oh I'm sorry
Representative Nate Bell
Unverified
9:50
representative Bell mr. chair I had a couple questions for df&a relative to this bill would
get somebody to mr. leathers and mr. tice if you would recognize yourselves for the record please mr.
Speaker 45
10:10
chairman Tim leathers for DFA and John Tice DFA is with me you recognize we'll be glad to answer any any questions I want to first of all
just take the general principle we've talked about already time there's a revenue impact will be here to say that's not included in the budget even though it is a minimal impact here but I do want to clarify we're talking about two different transactions here we do not tax the amount that's paid for the work by the warranty company by the provider it's the deductible where the homeowner pays that that's being taxed so it's not taxing the same transaction twice same thing if you get your car repaired and you pay a deductible if
you're paying the dealership the deductible then that parts taxable the part paid on the warranty is not when they've amended to take the cars out of this so it's only their industry it's a minimal impact of about a hundred and twenty thousand dollars but that's the that's a distinction here and we've never taxed what they have paid twice it's that
deductible we're talking about well the reason that's important to me is the principle that we're using in this case needs to be consistent with the principles we're using in other cases otherwise there will be a lot of folks coming in and saying I need to be
treated the way group A is being treated that's why I want to make sure that we understand that
Representative Nate Bell
Unverified
11:38
representative Bell you're recognized for questions thank thank you mr. chair and I guess as I look at this am I hearing the testimony correctly that this is a new enforcement from dfna or has this been your consistently applied policy we have
never ever in the history of our industry
in this state been taxed on this it's never been collected from us it's never been collected from our contractors the concern is to go back in now at this late date you could impose a new tax if you want but to go back in and collect back taxes at the end of the day if you want to impose this tax that's never been collected in the state you could it'll come out of Arkansas consumers pockets it's a pass along to us we don't really care either way you tax it we're just
saying the status quo is that a correct assessment of where we have been historically on enforcement mr. leathers or mr. guys represented mr. chairman we
Speaker 45
12:36
went and checked with our field audit to see how we treated the industry and we have assessed this when people have not paid it we've also found it being paid by people that are making repairs and doing those sort of things it's not reported separately to us so you're repairing something that's otherwise taxable you don't tell us what we did it under warranty contract or not you just report the sales tax so we don't have any way to go in and segregate that out all we can do is ask our auditors and then we ask the industry so that we
don't come up with a number that's outside the parameters of what the industry would say so we went back to them is why we came up with that number But from what our folks in the field say, it's being reported both ways, although they think it's a minimal impact and they've accepted the
Representative Nate Bell
Unverified
13:27
numbers that the industry said as to the total that's out there. So I guess what I'm hearing is a direct conflict in testimony. The witnesses testified that this has not previously been collected, and you all are testifying that it has.
that causes me some angst because it's not very often that we get people who basically make directly opposite question statements of fact I guess we need some we need some we need some data that indicates from one of the two of you that supports your position mr. chairman in representative
Speaker 45
14:01
the the best that we can do is go back and ask our people in the field that are out there that are auditing these because this will be someone that's in business doing
repairs and they're filing all kinds of reports and we don't have any way to go back and second-guess and that's what we do you know we've come in here before and said that this is a clarification and we haven't been taxing this and done this work and we'll do that and you know it's minimal here but we don't have any way to say that there's not somebody out there we haven't caught that's not paying and we certainly can't speak for the whole industry and everybody that's out there doing repairs in that instance so we can't speak for all of them but
you know we'll be glad to go back and look and see if we can come up with more data or we can't show you what companies
Representative Nate Bell
Unverified
14:52
are reporting but we can we can see what we can find I'd be interested in seeing data from the industry side as well that indicates that there's a long-standing from from more than one business that that there's been a pattern of not being assessed this. And at this point, just my personal belief, Mr. Chair,
we need more information to be able to make an informed decision
about this bill. Thank you, Representative Bell. Mr. Chartrand, it looked like you wanted to respond to Representative Bell's
Speaker 33
15:22
question as well. Thank you, Mr. Chairman. There's only seven states in the country that this could
Representative Nate Bell
Unverified
15:27
even possibly come up because there are only seven states that tax this all up front. I represent the entire industry. you only have 23,000 contracts even written in the state of Arkansas the vast majority of those are written by one of our members they've never paid a tax on this it's never but the only reason we're here today is because this
came up out of the blue this summer when they went after a local Arkansas contractor for the money and we said nobody's ever collected it because it doesn't happen because we pay it all up front so there's just no data out there to support the tax ever being collected
Speaker 48
15:59
our members have never paid it to your knowledge is that the first enforcement effort that you're aware of it's only been suggested in one other state the state
Representative Nate Bell
Unverified
16:08
of Florida and we have a similar thing going on with them and they were waiting for them to render an opinion there's been a suggestion that maybe it should be done there we've said no
there's in the state of Washington as we speak they're passing a bill like this to state that it's not taxed because they're gonna now
collect it all up front mr. Chartrand could I ask you a question please let's say I said I'm going to sell an insurance product and it's going to
be a service contract and my price is going to be 1% of my expected repairs and my deductible is going to be 99% could you please tell
me on which portion would I be paying sales tax in that scenario very difficult
Speaker 17
16:48
to answer because this is not an insurance
product the state of Arkansas declared six seven years ago up here this is not insurance so
Representative Nate Bell
Unverified
16:57
these are not insurance products what's there no insurance benefits to these contracts whatsoever they provide service repair replacement due to normal wear and tear so they're a separately regulated product in Arkansas your insurance department regulates it but as a states in the law this is not insurance so I guess I'm very hard-pressed because it's not a insurance I did a poor job
of wording my question let me make another
attempt if I was going to pay for this service and and I bought a 1% contract for the service and agreed to pay a 99% deductible for the actual service when it was rendered upon which part would I pay the tax Wow I'd be like saying you pay $1 for
Representative Nate Bell
Unverified
17:38
a car and pay 99% on service it doesn't happen in the real world mr. chairman if I don't know if I exempt part a from tax I expect that
it would happen quite quickly wouldn't you no sir not at all we have to make money on
Representative Nate Bell
Unverified
17:54
these contracts we have to sell them the average price nationwide and in Arkansas is about five hundred dollars if we charged a dollar for these we'd be out of business
in a day it just doesn't happen can't happen representative Kerr
Representative Nate Bell
Unverified
18:12
did you have a question representative Bell you recognized just just to make sure that I understand you mentioned enforcement efforts in other states and while I appreciate what's happening in other states we're tasked with dealing with Arkansas and you mentioned that there was the enforcement effort that began last summer I believe
was your testimony that to your knowledge that's the first attempt to collect that I just
Speaker 48
18:35
want to make sure that that was your testimony that's correct this is the first we've
Representative Nate Bell
Unverified
18:41
ever heard of it I've been representing this industry since 1992 I've never heard of anybody collecting a sales tax on the first $60 of the repair work when they collect it up front again in 43 other states it's done a different way but all states are clear you either collect it all up front or you collect it when the work is performed in Arkansas you're
collecting it all up front there's no reason to be collecting it when
the work is performed mr. Tice did one second if you don't mind mr. flower is is that a fair assessment is this the first time that we have attempted to collect this Or do you just not have that information? No,
sir, Representative Bell. This is not the first time we've attempted to collect, and the history goes back beyond just home warranty.
See Mr. Youngmeyer there. This issue first arose years ago with automobile repairs. If I have an automobile warranty, I will pay for that warranty if I buy a separate warranty. but the the warranty contract will call for me to pay in addition a $25 or $50 deductible under Arkansas law the warranty itself is taxable for that repair transaction and any repairs that are done under that warranty or tax free but if the taxpayer the customer excuse me pays an additional amount the
deductible amount to get that otherwise taxable transaction done current Arkansas law says the tax is due not only on the warranty contract but any additional amounts paid by that customer so in a car scenario Arkansas has for years collected sales tax on the deductible the same analysis works with regard to home warranties the home warranty contract is taxable as a prepayment for taxable services but if an additional amount is paid by the
the homeowner to get that taxable repair then current law says that additional amount to get that taxable repair is taxable as if the homeowner just paid the full amount instead of paying a $60 deductible if the homeowner had paid $260 the whole $260 would have been taxable here the homeowner paid a portion when they purchased the home warranty they paid the remainder of the contract amount when they paid the $60 deductible Arkansas law says the full amount paid for that repair is taxable and our our administration maybe we
haven't gotten every taxpayer who's providing but certainly we have audited this issue and address this issue for several years thank you I think that kind of goes
Representative Nate Bell
Unverified
21:20
to the chairman's point as well thank
Representative Mark Lowery
Unverified
21:22
you very much if I if I may interject and clarify a couple of things that that haven't been mentioned is that and we have a this would be purely anecdotal information is just one one service provider who who is available to give testimony but he would also be able to tell you that this has never been collected from him the issue that's
most critical here is for us to recognize that that $60 deductible and even the service fee that's paid over and above the deductible is also taxed it's taxed under income tax it's taxed under gross receipts so you're receiving tax there plus the tax on the front end of the contract but here's the critical point is it applies to DFA their own rules gr99d2 are clear it says service and parts provided under the warranty will not be subject to sales tax that's
what the rule says will not be subject so the rules clearly state that I that's why this bill is written as a clarification a clarification not an exemption I actually had it sent back to drafting because the word exemption was put in at one point but it's not an exemption because it's not been collected and even by
the rules it's not supposed to be collected representative courage you have
a question yes sir thank you mr. chairman okay the gentleman DFNA mr. Tyson what is that correct do we which part of the
service do we collect tax on the the parts or the labor
it depends on the type of transaction if it's a taxable transaction both the parts and labor are taxable under our current law the regulation that representative Lowry is mentioning is is absolutely correct what that says is if a repair as a taxable repair and it would have cost two hundred and sixty dollars and that two hundred dollars is covered by the warranty and sixty dollars is a
deductible then the two hundred dollars covered by the warranty that parts and labor is not taxed because you already collected the tax on the warranty at the time of sale the only part of the transaction that's subject to tax when the service is actually performed is the additional sixty dollar charge the customer paid to have that service work done so the rule is addressing that because tax was paid under the warranty when you purchase the warranty that any service work covered by that warranty is not subsequently taxed only an
Speaker 72
24:02
additional amount paid outside the warranty as a deductible is
taxed okay so who's collecting who's supposed to be collecting tax on that warranty on the on the deductible sorry
Speaker 74
24:22
the service provider that provides the service the
repairman okay but the deductible is a condition of the contract you have already taxed the
contract all right so because that deductible is a condition of the contract and part of it I don't understand how we can tax it again since you've already taxed the contract you're taxing a
taxable service that's what the law applies to the taxable service in this case is when the repairman comes out and does the work state law says the portion current state law says the portion of that service
that was covered by the contract was taxed when the contract was sold then you look to see were there any additional amounts paid for that service outside of the contract and the answers yes there was an additional sixty dollars paid to obtain that taxable service that is the reason under current law on the deductible amount is taxed in addition to the warranty amount and
how are these service providers supposed to know that they're supposed to collect tax on on the on the deductible
Speaker 74
25:38
service providers who are providing taxable services
collect tax on all of their taxable transactions these service providers who are repairing a dishwasher or repairing an air conditioner or something if they come out to my home and I don't have a home services contract they're going to collect sales tax on their parts and labor from me today that's nothing new for those repairmen and if they collect instead of charging me 260 for that service they just charge me the $60 knowing they're going to get the $200 from the home warranty contract they know to collect tax on the amount they
charge to me for their services I still think this is an awfully awfully gray area
can I ask you one more more question is there a a task out there or is there some I've been hearing about situations like this from all over the place where all of a sudden the FNA is is coming out and and telling people they owe tax on something that they have
never known that they owe tax on and that they I'm getting calls from all different types of industry is there a
Speaker 79
26:50
task force that y'all created to go out and find more revenue no sir there's
not mr. Kerr I've been doing this now for 32 years every time we audit someone for the first time that's a common response I've never heard of this before but I've been hearing that for my entire 32 years and I will hear that the remainder of my career okay
Representative Meeks, you're recognized for a
Representative Stephen Meeks
Unverified
27:19
question. Thank you, Mr. Chairman. I'm not sure who to direct this question at. The
excuse and kind of pigtail off what you just said is because I've never had to pay this tax before, is that a valid excuse to – in my mind, that's not a valid excuse for someone getting out of taxes because, you know, that's a Pandora's box there. The other question I have is if I run a computer business and I create these warranty contracts,
similar to what we're talking about here, and I come out, my serviceman has a $60 deductible. In that field, he's going to have to pay taxes on that service, on that $60. Is that correct? Yes, sir. So that's a common example we're going
to run into, very much like the automobile warranties and the deductible involved in that industry. Okay, so my concern here
Representative Stephen Meeks
Unverified
28:15
is basically what we're doing is we're creating an exemption for a specific industry and not tackling this as a whole.
Chair
Unverified
28:23
The bill would have that effect, yes. Okay, thank you. Thank you,
Representative Douglas House
Unverified
28:33
Mr. Chairman. Representative House, you're recognized for a question. Two questions. first and mr. Tice the policy and the general understanding of our statutes is is that anytime money flows there's a tax
imposed is that correct the statute addresses that and what state law says is taxes due on the total gross receipts for a taxable service that's money that means the entire amount received for
that service if a portion of that amount is paid from one source in this case a warranty and the other portion is paid from a second source in this case the deductible our current law says taxes to you on the total gross receipts okay that taxable service right
Representative Douglas House
Unverified
29:12
next question if I'm a and I don't really know who to ask about this question but let's say I'm a mechanic or a and I've used the word mechanic in the artistic sense service provider if you will service
service person and I'm called out by a company it says look we've got a warranty on this these folks home their air conditioner just crashed go out there and fix it I go out there and fix it my total time charges to repair replace the unit or X number of dollars and I charge $60 deductible $50 deductible and collect sales tax on top of that then I send my bill to the warranty provider
does the warranty provider then do I collect the tax on the warranty provider since I have in fact built my services to them as an
independent contractor if I'm understanding your question correctly the serviceman who remember is is accustomed to collecting tax on this service work yeah knows and he has a a sales tax permit and would know that I collect tax or the service provider collects tax on the part he charges for his services if that service provider
bills a third party in this case a warranty contract provider that portion is not subject to tax because and the reason being is the regulation that representative Lowry mentioned earlier that regulation says because tax was paid on the warranty when the warranty was sold then any amounts covered by that warranty are not subject to tax when the
Representative Douglas House
Unverified
31:01
regard so regardless of whether the the warranty provider or the homeowner pays
the bill or excuse me if the if the warranty provider pays the bill then they don't pay a tax on that transaction that's correct but the
money has flowed that's correct because the warranty provider paid tax collected tax when they sold the warranty so any subsequent work done under that warranty is tax-free
got you thank you representative Thompson you're recognized for a question
Representative Tommy Thompson
Unverified
31:32
thank you mr. chair one real confusing part of this is if you buy a service contract and you pay up front and then you don't use it suppose
everything goes fine and you don't
have to use it under our current law the taxes due on that warranty whether you use it whether you don't use it whether you use it five times the value of what you paid the tax is established that was a decision this General Assembly made back in the 1980s originally I'm do some history here and I apologize I get carried away sometimes with history but the individual warranty work excuse me every service was taxed and the
automobile industry came to this General Assembly and said we would prefer to have the warranty contract tax so we only collect tax one time on the motor vehicle warranty this General Assembly agreed and Dennis can correct me if I misspeak but I'm certain that's correct and then when service work is provided then there's no tax due under that warranty the General Assembly agreed and we have the law that we have today that all warranties covering taxable services are taxed when the warranty sold whether none of its used or whether
it's used for in excess of what the
person provided thank you thank you mr. chair mr. Tice if I if this bill
were to go into effect and I were to design a service contract where I charge the purchaser approximately one percent of the value of service
when they bought the warranty and then when the repair person came out I charged approximately 99% of the value of the service upon which part would the person pay sales tax they would only pay tax on the
amount identified as warranty this bill would exempt the deductible amount so they
would pay tax on 1% of the value and they would have 99% of the value exempted that's
correct Thank you. Are there any other questions from the committee? Mr.
Representative Mark Lowery
Unverified
33:44
Chair, Representative Lowry, you're recognized. I'd just like to follow up on some
of the testimony we've just heard. You know, I would at one point, you know, probably want to say that when we start talking about auto warranties,
the discussion of that is really not germane to this. But I think we heard a very important aspect in this last testimony from Mr. Tice that when the auto repair or auto warranty people came to the legislature, they specifically asked that it be taxed at one end or the other. And this statute was put into place saying it would be taxed on the front end. That is all we're trying to do today is clarify what the legislature's intent was at that time to tax at one end. The other thing is, you know, we can come up with all kinds of hypotheticals that make this sound like it's a sweetheart deal.
But the bottom line is, for instance, your hypothetical, you'd go out of business. Nobody's going to buy that contract. No one's going to buy a contract of 99% of the repair because they don't ever know what their repair costs are going to be. So the hypothetical itself puts it in an area that really can't really artistically be looked at in terms of this bill. I'll give you an example of how I would
implement my hypothetical in a moment. But Mr. Tice, a question for you.
Are the auto service contract sellers today subject to the same requirement that they collect tax on any deductibles that are associated with the auto service contracts? yes sir they are it
Speaker 80
35:15
doesn't it's not limited just to automobiles it would also include warranties on computer
Speaker 72
35:19
equipment electronics and other things so it's a representative Lowry a moment ago
you told me that the auto people are only taxed on one end and not the other or do you hear what I hear that that's
Representative Mark Lowery
Unverified
35:35
not true well that's what I heard mr. Tice say originally when he was talking about the historical perspective of this is that the industry came to the legislature and said that this should be taxed on one end or the other and they chose it to be taxed on the front end so that leads me to wonder why we are here talking about it being taxed on the tail end if those warranty companies said that they wanted it taxed on one end they had a choice one or the other now
Now, we're coming back and trying to reinvent the law to say, well, we gave you one choice or the other, but you know what? We're going to go ahead and collect on both ends. The state of Arkansas is not losing out on tax revenues as far as the repairs are concerned. As I said, the money that that repairman would receive would be part of his gross receipts. It would be part of his income, and he would pay taxes on that. I think maybe we're splitting hairs here and looking at the deductible as a separate contract or separate monies paid.
It actually is an offset. And if you look at that rule that we referenced a while ago that says repairs, service and parts provided under warranty will not be subject to sales tax, that includes the entire repair. The $60
Speaker 104
36:52
deductible is just an offset. It's not a separate transaction. does anyone on the
committee have any more questions all right we
representative house you recognize for a
Representative Douglas House
Unverified
37:17
question just ask one other question the rule that mr. Lowry quoted it in his testimony other is that based in statute or is that a rule of practice that
he mentioned it is based on the
warranty statute the language of the rule is not found in the statute but it interprets that warranty provision and it interprets it to say because the state got tax on the warranty the subsequent service work paid by that
Representative Douglas House
Unverified
37:48
warranty is not taxable reason I ask the question it seems perfectly logical to me that the customer should not pay a sales tax they've already bought a warranty they're not laying out any cash it's beyond my understanding why a mechanic or repairman or anybody else wouldn't charge the person that's paying him for the service a sales tax in all fairness that's that's because the warranty itself yes but the warranty the warranty has nothing to do with the repairman and the warranty issuer he's buying a service that he has to provide
to a third party therefore money goes from the warranty provider to the repairman therefore it's a sale but that service has nothing to do with the the repairman repairman it's
not a party to the warranty I understand your point the the result of taxing the transaction between the repairman and the warranty contract issuer would be to collect tax when the service was was performed but also the warranty would have already been taxed so that same searcher with
the tax twice yeah the customer the
Representative Douglas House
Unverified
38:56
customer pays the warranty tax on the front end and then doesn't have to pay it again I understand that but where has the provider paid a tax for what they have purchased which is the services of a serviceman you see they're not party to them the serviceman is not a party to the contract the provider would not
have paid tax on that and I think the underlying reason is so you don't get taxed on the same transaction twice yeah I
Representative Douglas House
Unverified
39:23
see two transactions we might look at that later thank you
Speaker 108
39:27
representative Currie you're recognized for a question representative Lowry
I fully see what you're trying to do and in principle I agree with you you've got a lot of questions on this on this committee right now I'm gonna make a suggestion take it for what it's worth you may want pull this bill back and let's do some more work on it and do some more
research I think all my colleagues here are agreeing with you in principle but there's a couple of issues that we're concerned about and and maybe you might want to just a suggestion pull it back and let us work on
Representative Mark Lowery
Unverified
40:16
it well I I would appreciate all the help that I can get and that's
certainly why I brought mr. Char Tran in from Kansas to help me today, and I certainly appreciate the tenor of what
you're saying, that there is a general inclination to support this, because we're talking about protecting the consumers of the state. We're not protecting some big multinational corporation. We're talking about not only the mom and pop repair shops, but we're also talking about those people that in good faith were told that the extent of their contract was going to be paying it up front, paying sales tax on it, and then paying a flat $60 deductible, not $60 plus sales tax.
And so I am certainly, I know I've taken up a lot of your time today, and I appreciate that, appreciate your patience. And if you think it will be something that we can clarify and fix with your help, then I am willing to pull this down, and we'll try it again. That's
my feeling, sir. I agree with you. Well, if it
Representative Mark Lowery
Unverified
41:18
pleases the chair then, rather than having this tabled, I would just prefer to pull the bill down, pull it down on the calendar, and we will come back to it when we can see if we can get better clarification.
Thank you very much, Representative Lowry, and Mr. Chartrand for coming and talking to us today. We really appreciate it. I see that Mr. Haney has signed up to speak in favor of this bill. I hope we didn't inconvenience you too much, Mr. Haney. and that you didn't have to travel too far, and I appreciate the
Speaker 100
41:49
committee, appreciate it, Mr. Lowry. I would say thank you very
Representative Nate Bell
Unverified
41:54
much. We appreciate it. Appreciate your time on this. I want to make, if I might, Mr. Chairman, one thing clear.
We're not trying to avoid any tax here at all. We just want to know what the rules are. The tax is paid by Arkansas consumers, not us. We just collect it
Speaker 111
42:09
for you. So whatever your final rule is, we're going to be fine with
that. And I understand, and I can assure you that everybody on this committee believes that there are lots
and lots and lots and lots and lots and lots and lots of taxes in Arkansas that are way too
very thank you very much chair thank you chair all right the next bill on our agenda is HB 1218 representative
Gina UK if we pass over that HB 1234 is next we'll pass over that HB 1240 I think that's a shell bill 1266 I don't see a representative Dale HB 1285 I don't see representative Lee 1296 representative Prairie will pass over so we're on to SB 212 representative
Viviano you're recognized to present the bill
Representative Mark Biviano
Unverified
43:10
Thank you, Mr. Chairman. Thank you to the
committee. Mr. Chairman, if you would please, I would like to ask Mr. Isom from the Real Estate Commission
to join me. Yes, Mr. Isom. Please identify yourself
Speaker 43
43:30
for the record. Gary Isom, Executive Director of the Arkansas
Representative Mark Biviano
Unverified
43:35
Real Estate Commission. Thank you. You're recognized. All right. Thank you, committee. SB-212 is Senator Fowle's bill that has passed through the Senate successfully.
Basically, what this allows, it allows the Real Estate Commission to become a claimant in a situation where a licensee has created a violation where the Arkansas Real Estate Recovery Fund has had to make a payment. And this allows the Real Estate Commission to become a claimant. So when in a situation where there is a future state income tax refund, they can become one of the claimants against that refund. So with that, I will take any questions on this bill.
Representative Stephen Meeks
Unverified
44:21
Representative Meeks, you're recognized for a question. Just for curiosity, what would be a situation that would cause a claim for the Real Estate Commission? I'll
Speaker 117
44:34
let Mr. Isom address that. we have experienced property management issues where a property owner had to file a
Speaker 118
44:41
complaint with our agency over rents that they weren't receiving that were being collected but not paid on to the owner that would be a typical
example another example would be where a deposit is put down for a transaction maybe a commercial transaction and the money is squandered away the deal falls through and the the member of the public cannot get their money repaid how how big of a issue is this in
Representative Stephen Meeks
Unverified
45:11
the state was this a fairly big problem I just for curiosity it's been a fairly big
Speaker 118
45:17
problem in the last couple of years we went for
several years with the recovery fund which has been in place for about or for over 30 years and for 30 years we paid out a total of six hundred six hundred and thirty six thousand dollars over that 30 years the last two years we have paid out more like two hundred and twenty thousand okay so the the problem has escalated and is that money coming
Representative Stephen Meeks
Unverified
45:46
from the taxpayers or where's that fund coming from the
Speaker 118
45:50
recovery fund is funded by real estate licensees every time a
licensee gets a new license they pay $25 that's a one-time fee that they pay that's how the recovery fund was built and if this goes into effect and
Representative Stephen Meeks
Unverified
46:06
you start getting these other monies and getting them paid properly then what would that do for your licensing fees and for that fund do you
Speaker 118
46:16
believe well it would help us maintain the minimum balance of that fund we have to maintain a $250,000 minimum balance in that in that fund and and what this does is
attempt to recovery the recover the funds from the individuals that we've had to pay out of and it would lessen the likelihood that we will ever get to a point where we have to reassess licensees to keep it at that minimum $250,000 balance okay thank you thank you mr. chairman I got a motion proper time does anybody else have any questions
all right representative me she recognized for motion the recommendation is do pass is everybody in favor all in favor say aye
aye any opposed the ayes have it thank you representative Viviana the bill passed thank you mr. chairman thank you to the committee thank you mr. chair members committee
all right SB 254 representative Goss as you recognize present the bill thank you mr.
chair senator Hester had run this bill through the Senate I think it passed unanimously out of committee and on the Senate floor it's a bill that actually came from DFA it's just a minor change and I'll let mr. pass explain
mr. Tice you're recognized mr. chair committee members that is correct this is a DFA housekeeping bill what this bill does is amend current law to allow DFA to not file a tax lien against someone who's owes individual income tax of two thousand dollars or less if that person can pay the debt off in 12 months and will agree to take those payments electronically the under current law DFA has to file a tax lien if someone needs a payment plan and that
can harm the taxpayers credit and this allows that taxpayer to pay the debt off in short order without a lien being filed be glad to answer any questions
Representative Stephen Meeks
Unverified
48:52
are there any questions representative makes you recognize for a question thank you mr. chairman and this may just be an opportunity
to be obnoxious but the the the fiscal impact here says there's going to be zero revenue impact as far as the ability to collect these taxes that we wouldn't have been able to collect prior to this
time because of people just not having the ability to pay versus your administrative cost to administer this would you kind of go into those what your expectations are there represented
Speaker 72
49:23
makes we are currently collecting the taxes to
to the best of our ability what this really changes is whether a lien would be filed as part of that tax collection or whether of tax lien will not be filed the costs of collecting the debt are roughly the same we'll still have the payment plan costs will stinson still send the taxpayer a notice every
month that your next payment is due and we'll have the the processing it's just we don't want to have to file a tax lien against the taxpayer if that taxpayer can deal with their issue fairly quickly so the only real reduction in cost will be the cost of filing a tax lien and hopefully that will not be necessary all right so you're hoping
Representative Stephen Meeks
Unverified
50:03
to actually save money here on that tax lien and taste maybe save some paperwork that's correct
but the real thrust to this is more taxpayer oriented so the taxpayer gets an opportunity to deal with their issue without a lien being filed as long as they can deal with it quickly okay
Chair
Unverified
50:18
sounds good to me motions proper time are there any other questions for mr. Tice is
there anyone in the audience that would like to speak for against this bill representative Meeks you recognize for a motion the motion on the table is do pass all in favor any opposed the ayes have it mr. Gossett your bill is passed thank you mr. chair thank you committee thank you very much committee could I get an adjournment motion? All in favor? We're adjourned.
Agenda
Documents
No documents posted.
Speakers
Speaker 1
Representative Charlie Collins Chair
Unverified
Representative Mark Lowery
Unverified
Art Chartrand
Unverified
Representative Nate Bell
Unverified
Representative Allen Kerr Chair
Unverified
Speaker 38
Speaker 45
Speaker 33
Speaker 48
Speaker 17
Representative Bill Gossage Chair
Unverified
Speaker 72
Speaker 74
Speaker 79
Representative Stephen Meeks
Unverified
Chair
Unverified
Representative Douglas House
Unverified
Speaker 65
Representative Tommy Thompson
Unverified
Speaker 80
Speaker 104
Speaker 108
Speaker 100
Speaker 111
Speaker 7
Representative Mark Biviano
Unverified
Speaker 43
Speaker 117
Speaker 118