House Revenue & Taxation Committee
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This week is going to be fast and furious as we get started. Our agenda today is focused on educating us. So we're going to have some folks that all of us will get to know well, get a chance to kind of walk us through a little bit about what they do, and we can start to see how the money works through this process. So without further ado, we'll go ahead and get started, and I think Richard Wilson is
going to be our first presenter. So Richard, I saw him here. Right here, Mr. Chairman. Thank you
Chair
Unverified
0:42
very much. Thank you. If you'd go ahead and take over, I'd appreciate it. The first item on the agenda is the monthly revenue report. each month we receive from the state treasurer
Speaker 7
0:53
basically what is a bank statement and from that we produce a monthly revenue report and in front of you is the report for
December, we'll have the January report ready about the second or third, usually on the first day of the month we get that report from the treasury and then it takes a day or two to put this together, about 1,000 entries per month on this report. The first page is a comparison. Since we're just ending the sixth month of the fiscal year,
what we have here is a cumulative six months of money compared to the same six months of the previous year. So in the middle of the page there, the left-hand column of numbers is the December of last month and then the previous year next to it, and you can see the growth rate on the right-hand column. Fortunately, it's a positive number. So at the very top figure, you have gross general revenues,
and then after that corrections for collection mistakes etc and then the line called net general that's where DFA starts their report on that net general and that that number right there is your economics so 3.3 percent is an accurate figure on on what the state did in the first six months of the fiscal year excuse me Richard are you okay taking questions as they come up anytime sure anytime
then I'd like to recognize Representative Bell for a question
Representative Nate Bell
Unverified
2:39
He may be going to get to it anyway, but I wanted to make sure I got in the queue. On city-county tourist facilities, there's a pretty large decrease. Is that just cyclical, or since it's a month-to-month comparison, I was
Speaker 7
2:55
curious if you had any idea why we got that. That one's being phased out. What that is is debt service help for municipal and county arenas like Verizon or the one in Fort Smith or I think maybe even Texarkana is still in there.
I'd have to go back and look. But probably 10 years ago, we began to phase out that benefit for those because the tourism requirement, the tourism objective had been met, and those facilities were beginning to weed their way into getting the members to help them with expenses. That is not what that line item is for. That line item is to help them retire debt when they built their facility.
not to help them with their expensive to run the concession stand. Thank
Representative Nate Bell
Unverified
3:51
you. I just wanted to make sure it didn't indicate a decline in the tourism sector, so I appreciate
Speaker 7
4:03
the explanation. No, sir, that's debt service. It's contractual. Thank you very much. Thank you, Mr. Chair. That line item that Representative Bell requested some information on is one of, you can see those single-spaced line items there under net general. those are off the top. Those are requirements off the top, usually required by statute.
A number of things there. The first two state central services constitutional officers is 3% off the top. That pays for all the constitutional offices, the governor, the secretary of state, etc. It also pays for your time here and my time here, as well as DFA. and then obviously tax refunds the money that goes back to the taxpayer after filing also with corporate and then there's the ever popular DSEG money
after six months you can see it at thirty six point two million dollars et cetera et cetera educational excellence the adequacy at the bottom is it's It's really just a factor that sends that money to special revenue. Representative Wren, you're recognized
for a question. Thank you, Mr. Chairman.
Representative Tommy Wren
Unverified
5:20
Mr. Wilson, you skipped over a college saving bond fund, and I'm looking at that, it's almost doubled.
Speaker 7
5:28
That's a debt service as well, and it's doubled because last year was the anomaly, not this year. Thank you, Mr. Chairman. So we get down to the bottom line, net available. What that means is what's left to send out to those state agencies that depend on this general revenue. You can see $2.43 billion after six months. So usually the way I would provide this report in council or in joint budget is to simply
go through it very quickly and say the gross collections after six months are $91.2 million ahead of last year. The net is $90.8 million ahead of last year. The growth rate on the net is 3.9%. Turning to the next page, you can see a graph. What that reflects is we're tracking the revenue compared to the official forecast from the executive branch. So after six months, we're 22 million ahead of that forecast actually that forecast was revised on November 15th that's why it went back to zero we start all over again and after
two months or after six weeks we're 22 million ahead of that revised forecast moving on page one of the spreadsheet which is your page three the spreadsheet reflects all general revenue line items on the first three pages you get general revenue line items in the remaining pages you get special revenue line items not every special revenue line item is included in this report but most of them
are and certainly the major ones that members like to follow looking at page one of the spreadsheet you can see on the very top line gross receipts which which is your sales and use taxes, barely above flat for the six months. On the far right-hand column, you can see four-tenths of 1% on the growth rate. However, for the monthly rate, 2.2%. So hopefully looking up there. That sales and use line has been flat for a long time.
there's five lines there of data for income taxes to corporate three individual the bottom line on the far right hand you can see the weighted average there at five point three percent so good growth rates right now in the income taxes the rest of it finishing out that page alcohol the second page racing severance there's some miscellaneous even some some line
items from other agencies such as insurance in the constitutional officers and finally the third page some more line items in the bottom line is the gross
Chair
Unverified
8:26
collections that matches the same number on the front page of the gross excuse me Richard representative Altus
Representative Denny Altes
Unverified
8:32
you're recognized for a question thank you mr. chair Richard back on page one on the corporate just I'd like to
just kind of go through all the income taxes there the the corporate final payment says 36 million is and that's for six months right yes sir and then the estimates is that a 166 is that for six months also it
Speaker 7
9:03
is those those 36 The 6 and 166 that Representative Altus has pointed out is six months of last year, and the six months this year is 33 and 158, down just a bit.
Many times that's a timing issue. Corporate probably more than any of the 12 or 13 major components of general revenue, corporate is a real booger to forecast
Representative Denny Altes
Unverified
9:32
biggest variance. Okay. Take a wild guess. on the total that we're going to receive from corporate income taxes? Looking at these numbers, would you just double 166? No, sir. There's only
Speaker 24
9:46
four or five months where corporate has a significant impact on the revenue report.
I can give you the official forecast for FY13 at $443 million. $443 million total?
Representative Denny Altes
Unverified
10:01
Yes. Corporate? yes okay what about individual 2.2
Speaker 26
10:05
billion 2.2 billion dollars a total yes okay thank you mr. chairman that's all I have for the monthly revenue report if there
Speaker 7
10:18
are any more questions before we move on to tax handbook yeah I just
had one Richard I see for individual income taxes and it's kind of continuing down
the line that Representative Altus was looking at. We're up 21% on final payments and we're up about 6.5% or 7% on withholding and estimates. Is the final payments people closing out their 2012 taxes? I would suspect
Speaker 6
10:48
yes, because you can see it's only 3.4 on the month, but the
Speaker 7
10:53
six months is is the 21.8 and I'd have to go back and look at exactly which
month the final payments bumped up but 13 million in final payments is not it's not something to get overly excited about got it okay all right
thank you is there is anyone else on the committee have any more questions before we move on saying none go
Speaker 35
11:22
ahead Richard to your next subject okay every other year in the even-numbered
Speaker 7
11:28
year the Bureau produces the tax handbook there's a copy
of it in front of you and all I'm going to do today is show you how to read it you don't need to carry this around it's it's big and bulky we have it on our desk at all times you can call Eden or Heather or myself and we can we can find the answer for you at any time but what this is is a compilation of of information on our taxes you can see turning to the very last page 192 look at weed assessment for every fee or tax reflected in this handbook the formatting
is exactly the same on every one of them and I point out the last page because it's real simple to see it here all on one page you can see rate and base exemptions history the last 10 years of revenue how the tax money is distributed the administration and the code side if you care to go into the big stack of red books and find it the code site is there for
Speaker 6
12:39
you to look at as well so let's look at page let's
Speaker 7
12:47
go to page 10 and this short-term rental tax and this again is
a very simple one you can see the exact same formatting rate and base exemptions history the revenue numbers distribution and the code site what this is is an extra penny on the sales tax for these these types of rentals you can see the exemptions longer terms farm machinery etc this thing in oh one generated about 1.7 million and last year about 2.7 million so you can see the history of
of the money from this particular tax levy now the very next
Speaker 15
13:32
page sales tax even though there's a whole lot of information
Speaker 24
13:39
here page 11 reflects rate and base and exemptions go to 12 and 13 14
Speaker 7
13:50
and 15 page 16 begins the history goes through 17, 18, 19, and then 20 and 20, excuse me, 20 has numerous tables to show you the
breakout, but still the formatting, even though this took numerous pages, the formatting was exactly the same, the exemptions, the history, etc. So with that, Mr. Chairman, I'll
Before we go to questions, I would just say as
a rep, you probably get a lot of mail and people send you a lot of things and you have a lot of publications, I would just submit that this is perhaps the very best one when it comes to taxes.
I've really not seen anything else that collects all the information about a subject in as detailed a fashion as this book does. And it also helps you raise very interesting questions. I'll just give you one example. If you turn to page 30 in this book, you'll see that it talks about the individual income tax. And yet, when you read the rate and base there in the second paragraph, you'll notice the very last sentence says that the rate is 7% on $25,000 in income or more.
But as all of us know from filing our taxes, the rate actually kicks in at closer to $32,600. And the reason is because there's another indexing law that changes that thing all the time, but the actual base code is still the same as it was from back, I think, in 1971. This thing really has a lot of great info, and Richard, I thank you so much for handing it out again. Does anyone have any other questions for Richard on the Legislative
Speaker 7
15:46
Tax Handbook? Mr. Chairman, on page 34, in fact, Act 328 of 1997, on the right-hand column, that's
Chair
Unverified
15:54
when we started indexing right there. Got it. Excellent. This book is so good, even Mr.
Speaker 42
16:05
Weiss requests a copy. Outstanding. Go ahead, Representative Meeks.
Speaker 7
16:11
Is there a microphone on? There is. there is if you go to the BLR page under research
reports tax issues you'll find it there wonderful thank you very much Richard yes sir next we're going to have mr. Kim are now and discussion of the general revenue distribution Kim
and Kim if you'd go ahead for us and just state your
Kim Arnell
Unverified
16:41
name and who you're with thank you mr. chairman my name is Kim Arnell and I'm with the Bureau of Legislative Research Fiscal Services Division what you have in your packet today are three pie charts and then a schedule on the back as a chairman stated this is the the first pie charts going to reflect a general revenue that was actually collected during last fiscal year ending
June 30th and you can see the amounts that were collected from the primary sources of general revenue the dollar amounts of percents that they make up of the total pie and then as you go down you can see the takeouts such as what comes basically off the top is what people refer to your refunds and claims your educational excellence trust funds state central services and constitutional officers so what you have there is the amount that was actually taken off the top and then you get down to your distributions so for fiscal year 12 you
can see that we collected four billion seven hundred and fifty one point six million and then that pie chart below there shows how that was distributed the dollar amount percent again to the primary sources of the general revenue pie as you can see the department Corrections and community Corrections there combined was about 367.2 million public school fund a billion 943 etc so
the way that might we actually revenue stabilization that year you can look at the left hand bottom of the left hand corner you can see a revenue stabilization law which distributes the general revenues that you all determine each session that we had two allocations allocation a and allocation B and that they totaled four billion five hundred ninety five point nine million so the additional money that was collected from that to the four point seven billion you can see that there was ten million set aside over to the right hand side of
that pie there was ten million set aside for the rainy day fund and then there was a hundred forty five point six million in surplus general revenue that ends up in the general revenue about my reserve fund so you can see that's how we ended up last fiscal year the next page the pie chart for fiscal year 13 is based on the governor's balanced budget and his recommendation that he came in on November 15th to the Legislative Council Joint Budget Committee you can
see that under the current estimate estimated to be collected this year is little over 6 billion 61 million you have your percents and dollar amounts that are estimated to be collected there at the top high again you have your takeouts till you get down to your distribution of general revenue for fiscal year 13 you can see that the 4.8 billion dollar figure there includes
ninety nine point five million in surplus general revenue which is estimated to be there June 30th it's not in the bank yet but that's what the current estimate is so for allocation a and the revenue stabilization law you can see in the left hand at the bottom of the left hand corner four billion seven hundred and twenty seven point five million once that's that
Speaker 46
20:13
buckets filled up any additional monies from there on become surplus Kim if I could just interrupt
real quick if you're like if you're in a slow learner club with me
and you wanted to find something like Medicaid it's it's actually in the Health and Human Services line item
is the third pie chart this is Kim can represent
Representative Bruce Westerman
Unverified
20:42
a Westman you recognize for a question Thank You mr. chairman Kim these numbers that you've got here where you're showing the 99.5 million surplus or general revenue allotment reserve those numbers have been updated haven't they does that
reflect the current projections for surplus funds plus the revisions on the Medicaid shortfall no this is
Kim Arnell
Unverified
21:05
a current general revenue under the current forecast for this fiscal year that
Speaker 54
21:11
the executive branch came before legislative council joint budget but that's
Representative Bruce Westerman
Unverified
21:16
based on the previous estimates on the Medicaid that's
Speaker 46
21:21
no that's it that's a different deal what you're talking about is is is
Kim Arnell
Unverified
21:29
I guess the shortening of the shortfall for the Medicaid program which was estimated to be about 138 million and we understand that that's going to be reduced some here in the next couple weeks that information but that doesn't that doesn't have any reflection on this basically what this is just how much general revenues that's made to be collected how it's
Speaker 58
21:52
going to be distributed and where that lands June
Representative Bruce Westerman
Unverified
21:57
30 okay now the the current projected
surplus would that be reflected in the fiscal year 1112 I believe those numbers have been revised no sir the
Speaker 60
22:09
1112 is the actual collection and distribution and how much surplus you had June
Speaker 63
22:14
30th general revenue surplus okay so where does
Representative Bruce Westerman
Unverified
22:18
the projection of general revenue surplus for June 30th of this year show up
Kim Arnell
Unverified
22:25
it's that second pie chart fiscal year 12-13 it's 99.5 million and that is
the current projection? Yes, sir. Okay. Kim, let me just poke a little bit more with that. The sheet you're handing out says 1115 on it, and I think, Richard, you were saying that they revised the budget 1115, and if we go back to the chart that Richard handed out, it looked like since this 1115 forecast was made, we were 4.6 million in November ahead budget and we were 22 million in December ahead of budget and while not a
perfect answer I represented Westman my hypothesis would be if you added that 26 million up that right now we're probably trending 26 million ahead of the 99 5 however you know next month we could be down and those types of things but but that may be to help solve a little bit what the money you're looking for that that you've heard is out is up does it does what I said make
Speaker 54
23:29
sense I believe so if I understood that correctly yes the 99 what what the December forecast
Kim Arnell
Unverified
23:35
reflects that Richard talked about is that for the first six months are up 22 million above the November 15th forecast so there are November 15 forecast has 99.5 in it you're 22 up above that through November so that's actually not money in the bank a surplus yet it's still being distributed to the revenue stabilization law that'll show up probably in June the surpluses so but right now it's looking pretty good the point I was trying to clarify this is
Representative Bruce Westerman
Unverified
24:10
just the estimate as of 1115 that that estimate could trend up as we get closer through to June oh
Kim Arnell
Unverified
24:16
absolutely it's an estimate of what's going to be available June 30 sure it could be up it could be down right the next the third pie chart reflects the governor's balanced budget for next fiscal year beginning July 1 you can see that it's estimated collections him
excuse me representative Thompson you have a question you're recognized for a
Representative Tommy Thompson
Unverified
24:41
question thank you mr. chair in the back on the 1213 chart it talks about the estimated general then it says less and it in that big era it names all those different services
Speaker 74
24:57
yes what is the debt service what is that 38.8 million
Kim Arnell
Unverified
25:01
that 38.8 million is debt service on bonds college savings bonds as well as water development bonds that's been voted on okay thank you sure make sure so your
third graph I mean pie chart reflects the governor's balance budget for next fiscal year beginning July 1 you can see that under the governor's current forecast of 6.2 billion what their estimate is for collections their takeouts and then how that is to be distributed you can see of the four billion nine hundred and forty seven point three million there at the bottom of that pie chart how much under his balanced budget is recommended to go for
which part of your services as well as ten million dollars set aside in rainy day fund as you as you look at these pie charts and as you go through the stabilization law for this session you'll notice that about 92 to 93 percent of your general revenue that's available for distribution is distributed to what you all commonly refer to as the big six agencies so there's six agencies entities that pretty much eat up your entire general revenue that are that is
the public school fund k-12 education that is the Department of Human Services the Department of Health the Department of Correction and Department of Community Correction and the 33 institutions of higher ed so by the time you budget for those folks you're looking at about 7% general revenue to distribute everybody else that
Speaker 63
26:42
receives general revenue the schedule mr. chairman
representative makes you're recognized for a question thank you
mr. I'm looking at pie chart here we've got public school we got higher ed and we got general ed what's the difference
Kim Arnell
Unverified
27:03
between public school and general ed and general ed is primarily the administrative portion of Department of Education the public school fund is the
grants and aids to local school districts okay so the public school doesn't include administration costs Nelson okay all right
Speaker 51
27:20
thank you thank you Mr. Chairman the schedule on the next two or three four pages there
Kim Arnell
Unverified
27:24
is the governor's balanced budget when he came before the Legislative Council Joint Budget Committee on November 15th he presented his balanced budget is required by law 60 days before the start of a regular session basically you can see on the left hand side of that you can see the fund and fund accounts that receive general revenue so those are the fund fund accounts you would see in the revenue stabilization law under the fiscal year 13 forecast that's the forecast for this fiscal year that they revised upward to include the 99.5
minus or plus on November 15th you have your base level which is primarily continuing of current operations as well as $20 increase for state health insurance it has some some other things built in it's about 29 million dollars base and then the governor's recommendation you can see in that other column there it's under the executive rec there's about 188 million dollars to
180 million dollars to distribute and 49 million of it went through the is recommended for general education it's the public school fund it's the adequacy monies that are determined to be needed and then the other lion's share of the hundred eighty million of course is a ninety million that you'll find in the grants and aids under human services for the Medicaid so if you get
Kim Arnell
Unverified
29:03
you can see that the difference under the governor's balanced budget the difference in the fiscal year 14 versus what is estimated to be distributed this year's two hundred nineteen point eight million about 29 of that is built into base and then you have the hundred and eighty in the executive rec plus there's ten million you can see of that total executive recommendation column of the four billion nine forty seven three hundred you can see that ten millions taken out of that for the rainy day fund so that would leave you a distribution
level based on this forecast of a four billion nine hundred thirty seven point three million and then you can the percent increases by each fund and fund accounts listed in that last column there mr. chairman that's that's an overview if there's any questions
thank you do any representatives have any more questions
for mr. Arnell representative Meeks you're recognized for a question
thank you mr. chairman the educational excellence trust fund could you speak to that a little bit for me what's all involved in that looks
like we got almost 300 million dollars going
Kim Arnell
Unverified
30:15
there yes sir the educational excellence trust fund is a half penny sales tax I believe it was passed in 91 I believe primarily it's the lion's share of that is monies for the public school fund at that time it was for teacher salaries so the public school fund k-12 receives some of those distributions as well as the Department of Career Education and the institutions of higher ed okay so basically just
another funding source for education yes for
right. Thank you very much, Mr. Arnell. I appreciate it. And
next on our agenda for an overview of state taxes are Mr. Tim Leathers and John Tice. Absolutely, that's fine. Just say your names and who you're with when you get settled in.
John Tyson
Unverified
31:24
Mr. Chairman, I'm Tim Leathers from the Arkansas Department of Finance and Administration. John Tice is here with me. Also,
our director, Richard Weiss, is here. If you want to ask some questions of him, he's anxious to speak today, I think he says. Thank you very much. You're recognized
Speaker 87
31:45
to share with us your overview. Thank you, Mr. Chairman. We
John Tyson
Unverified
31:50
appreciate the opportunity to come here and get acquainted. We have several new members who we don't know.
We look forward to getting to know, plus some of you we've worked with before, and we look forward to a continued good relationship with you and this committee as we've had in the past. We've sat in here for many years. We said that you guys replaced our old chairs that we had a nice mold from sitting in here for 30 years where we'd worked ourselves in and fit pretty good. But what we want to do today is John's going to give you kind of an overview of state taxes. And we are technicians.
That's what we do for a living. And we try to be professional at it and provide you the best information. What I want to do before you get started is just give you some kind of background about our agency and our responsibilities and how it kind of ties in with what you've heard already today and how we work and how we try to assist the legislature on behalf of the executive branch one of the things that you will find if you start talking to
your colleagues and looking at other states is we're a little bit unique in this state and that we're the only state that one fiscal agency has all of the responsibilities that we have we start out with forecasting the state revenue and putting together that number on behalf of the governor to come up with a balanced budget that we provide to you from the Department of Finance and Administration you were introduced last week to dr. Shona Whitney from their
office that works for the director and preparing that and presenting that to the governor that comes to you in that formal manner also we're responsible for collecting the tax and we're also responsible for administrating the state budgets and keeping up with the accounts like the controller and a lot of other states I think that's a good thing from the standpoint is it makes the fiscal agency responsible throughout the process in that we have to coordinate all
that and we look at it from a standpoint of anything that we do on whatever side we do it how does it impact that taxpayer and how does it impact the state budget and how does the information we provide you as the policymakers make the best decision that you can make so when we come here and provide you information we want to be here to answer questions and we have a formal process that's set up and John's going to talk a little bit more about
that where we try and gather information on any bill that comes before this committee we also do the same thing on tax and license bills and other bills that impact the state's budget and we'll provide those to the committee electronically so you will have those and one of the things that want to do this morning is to let you know that we are available even though we work for the executive anytime you have a question or you want information or you
want our ideas on anything we can only speak for us when we speak formally down here we will sometimes speak for the governor the governor may have a position on a bill and we will try to respectfully and politely let you know what that position is and why that position is there but we want to make sure that you know that we're available and you can call the director's office where Richard and I are you can call John's office or you can call email any
of the offices we have and expect that we will do our best to get you the best information available and want to make that available to you with that I just let John do a very brief explanation there's no way he can do an in-depth explanation of all the taxes that we have and we'll be glad to answer any questions that you have about anything that we do thank you that sounds great mr.
Chair
Unverified
36:03
chair committee members my name is John Tyson I'm the assistant revenue
commissioner for DFA and as Tim said we have an obligation under state law to administer the tax laws that you guys pass and as part of that during the legislative process we talk we communicate with the committee about each bill that you'll be considering we do that via something called a legislative impact statement when a bill is introduced this group of folks that you see over here they take those bills they analyze those bills and they prepare
an impact statement that gets forwarded to your committee staff and will find its way for those of you who were on the committee last session you'll remember the green sheets and this is how those green sheets were produced DFA produced those and were then put in your packet now this session you guys have the information electronically and you'll be able to see what DFA's analysis is of each bill we do that analysis based on our responsibility to administer the laws that you pass those impact statements start out by explaining what
current law is and how the bill in question is going to change that current law and if there's a revenue impact either positive or negative then WE TRY TO EXPLAIN WHAT THAT IMPACT IS. WE TRY TO PROVIDE THAT FOR AT LEAST TWO FISCAL YEARS. WE ALSO TRY TO LET YOU KNOW IF THIS IS GOING TO HAVE ANY IMPACT ON THE TAXPAYER, IF IT'S GOING TO CHANGE WHAT A TAXPAYER HAS TO DO WITH REGARD TO HANDLING THEIR STATE TAXES. IF IT'S GOING TO REQUIRE ANY RESOURCES FOR DFA TO ADMINISTER, WE TRY TO LET YOU KNOW THAT.
IF IT'S GOING TO TAKE A SPECIFIC AMOUNT OF TIME TO GET THE
VIEW UP AND RUN. If I could just interrupt you real quickly. The fiscal impact statements that
he's talking about for new members, I bet you that's probably the number one question you'll get on a bill that has to do with money when it's on the floor. So, you know, excuse me? Great. So those things are really a powerful statement of where the money is flowing. Whether you personally agree with it or disagree with it, it influences a lot of the 100 people that vote.
Speaker 92
38:15
And one of the issues I've seen in the past is folks zero
Chair
Unverified
38:21
in on the revenue impact and just look at the dollars and sometimes don't pay attention to other issues. One of the other issues may be there's some legal consequences, and there will be a section where there's a legal analysis that I direct your attention to because if the bill has some legal issues, you need to know that. And I will tell you that DFA tries to go to the sponsor before a bill ever comes before the committee and let the sponsor know, okay, we have an issue involving your bill,
and we talk to that sponsor in advance to see if the issues can be resolved before the bill ever comes up in committee. But anyway, you will get those impact statements. My phone number is 682-7000. I gave that to you last week, and hopefully you jotted it down. But if not, if you have an impact statement that you have questions about, always please feel free to give me a call, and I will gladly discuss that. Excuse me, John. Representative
Altus, do you have a question? You're recognized for a question.
Representative Denny Altes
Unverified
39:18
Thank you, Mr. Chair. John, we've gone round and round for 14 years now on dynamic scoring. And is there any change in your heart to start doing dynamic scoring? No, sir, there's not. And I'm going to let Tim
Chair
Unverified
39:37
address that. he's the issue came up in the Senate committee and he explains that much better than I
John Tyson
Unverified
39:47
Mr. Chairman for those of you that are not familiar with the concept of
dynamic scoring it is an economic theory that says that if you decrease taxes and you are therefore putting money back in the economy that money turns over in the economy, and there's a resulting economic impact. We have looked at that, we've looked at what other states have done, we've looked at on a national level. One of the things that makes state taxation so much different from federal taxation, and looking to apply
any theory like that, is that when the Feds decrease a tax, they don't decrease spending. Arkansas we balance our budget so we got the money in the economy one way as opposed to another and any analysis that we would do or have done does not create any difference of any magnitude on anything we've ever seen in any kind of economic impact that's been our study of that now it might be in theory that the
money would be better off being spent by a particular taxpayer as opposed to being spent on doctors on Medicaid or you know wherever you're going to make your cuts in that process if you do that you know by shifting in the economy but there's no tool that shows any discernible difference in that and what we do on the state level so having analyzed that and looked at it and you know looked at it with economists and talked about it with people around the the country we don't think it's a valid tool because the difference in funding
at a state level and a national level and the fact that you would have to have a very large substantial cut like cutting out one entire tax or something of that nature to have any kind
Speaker 26
41:53
of measurable impact okay up in the past
Representative Denny Altes
Unverified
41:56
I I can't remember. Somebody would volunteer to do us some dynamic scoring. I don't remember whether that was Kim Arnell's people or Dr. Shelnut. Do you remember anybody ever volunteering to do us some dynamic scoring?
John Tyson
Unverified
42:11
No, sir. I know some outside economists and things, particularly when they're working for the person that's proposing the legislation, have done some dynamic scoring, but I don't think that your staff or anybody in DFA has ever provided any dynamic scoring. Now, you may have that maybe thinking about what we do when there's an economic development project where we do what we call a cost-benefits analysis, and sometimes we will come to you and say,
well, and, you know, there we're bidding to get a company, so we know we don't get the company, we know exactly what we're getting and what their investment will be, and we'll show what their turnover is. It's not a matter of taking money out of the economy or not. It's a matter of a company is locating here, and they won't locate unless you – at least that's the theory – unless you provide them that. So you do the cost-benefits analysis to say, if we give them this, we're reducing their taxes by this amount, or we're giving them some subsidy of this amount,
and we will more than make up for it if they locate here instead of locating in another state so we do those we work with the Office of Economic Development and doing that you will you know see those regularly where we will there will be a cost-benefits analysis that we have participated in assisting them with so that might be what you're thinking about Mr. Alvis Thank you. Go ahead, John.
Chair
Unverified
43:48
Unless there are additional questions about the revenue impact statements, I'll move on to just a very high-level overview on sales and use taxes and income taxes. And although DFA administers about 40 different taxes, I want to just spend my time on those two taxes because, as you saw from the information from Richard Wilson and from Kim, those two taxes bring in the vast majority of the state general revenue the sales tax came along in 1935 the current sales tax law we operate under was enacted in 1941
the current sales tax rate is six percent sales tax is levied on all sales of property as well as selected services and that six percent tax rate is divided into various elements four and a half percent of that six percent rate is general revenue one half of one percent goes to property tax relief trust fund that's the trust fund that's used to reimburse counties for the three hundred
and fifty dollar homestead property tax credit that that you're allowed on your home seven-eighths of a percent goes to the educational adequacy trust fund and I think Kim Arnell was answering a question about that earlier that money's dedicated to primarily public school education and finally you have 1 8th percent that's levied by the Arkansas Constitution that's the conservation tax that's split between Game and Fish Commission and Parks and Tourism we also have a new half percent levy effective July 1 of this year the tax rate will
increase to six and a half percent in November the voters approved a half cent sales tax increase to fund a bond issue for highways this is the first time that I'm aware of that sales tax money has been used to fund highways primarily highways in the state are funded through motor fuel taxes that are built into the price of a gallon of gasoline or a gallon of diesel fuel the current highway motor fuel tax rate is 21 and a half cents on a gallon of
gasoline and 22 and a half cents on a gallon of diesel fuel so when you buy that fuel and place it in your vehicle you're paying that tax on motor fuel that goes to the highway department this half
Speaker 98
46:14
percent sales tax will fund a bond issue and those bonds will also be used for highway improvements we have some special tax rates on our sales
Chair
Unverified
46:28
tax rates on certain items currently food is
subject to a reduced tax rate rather than being subject to the full six percent rate food is subject to a tax rate of one and one-half percent and governor Beebe's expressed his interest to try to eliminate much of the remainder manufacturing utilities when a manufacturer in your district buys natural gas or electricity to operate their facility those utilities are subject to a reduced rate of 2.75 percent we also have a higher rate in
Texarkana back about 20 years ago the General Assembly authorized residents of the city of Texarkana to approve a 1% additional sales tax on sales within that city in return for eliminating the individual income tax on residents in that city so that's been the law for a little over 20 years one of the things you will hear with regard to use sales tax is also that there's a complementary
tax known as the use tax if you go to a local merchant and purchase an item from that local merchant in your city that merchant will collect sales tax if you you order that item from a merchant outside Arkansas and it's shipped to you the tax that's due on your purchase is called the use tax the use tax is imposed at the exact same rate as the sales tax and imposed on the exact same items the only difference is where the transaction occurred we have exemptions
that apply to both the sales and the use tax there are roughly 120 exemptions in Arkansas law those exemptions apply equally to sales and use tax the exemptions fall into three major categories the type of exemption excuse me the type of item that's being sold an example would be insulin test strips or prescription drugs are exempt because of the type of item the identity of the purchaser for example you have exemptions for the Boy Scouts and Girl Scouts and Salvation Army and Habitat for Humanity and those are based on who
the who's making the purchase and then you finally you have some exemptions based on the intended use of the item these are the most difficult exemptions to administer because you have to ask yourself an item is farm machinery it might be exempt if the items being used to grow an agricultural product but if that tractor is being used to mow a golf course then it's not exempt so a tractor could be exempt or not exempt depending on its intended use
be glad to answer any questions related to sales and use tax if you have any if not I'll
Speaker 80
49:21
move on to income tax representative Hutchison
you recognize for a question thank you thank you did I say did I read in one of these books here that to administer the sales tax those those businesses that do that they get a two percent yes
sir that's correct under current state law of business
Chair
Unverified
49:44
that collects sales tax from their customers and since that tax into DFA in a timely fashion meaning they send that tax in by the 20th of the following month is entitled to retain two percent of the taxes they owe up to a maximum of $1,000 per taxpayer so basically
instead of a six percent we're a little less right it's a little less subbing a business that owed $100
Chair
Unverified
50:12
in tax if they paid that tax timely they would pay $98 and they get to keep two dollars if they
owed a thousand they pay nine hundred eighty dollars
and keep twenty one other question maybe I've been asked back in my district for instance like the beer tax it what was it first initiated for was
it daycare or education like that
Chair
Unverified
50:42
or is that that great I have honestly forgotten there was a 3% beer tax for quite some time and without going back and refreshing my memory I don't
remember I think the current beer tax is 1% and is it does
Speaker 112
50:57
it still go with it for that use I do not
Chair
Unverified
51:00
believe so I think the use was changed when the tax was reduced to 1% I think the purpose changed I'll be glad to look those purposes up for you just I'm getting old and my memories getting faulty thank
Speaker 80
51:14
you thank you representative Hudson okay you have a question Andrew Representative Lee, you're recognized for a question. Thank you, Charlie.
Speaker 115
51:24
Mr. Chairman, sorry. Couldn't resist, sorry. Were you involved in doing the financial impact statement on the fiscal impact statement, excuse me, on Medicaid expansion? Did you all write that up? No. Do you know who did? No. Thank you. All right, Mr. Tysh, you can continue.
Speaker 87
51:51
Mr. Chairman, that was done by DHS. Okay, DHS, thank you.
Speaker 92
52:01
Talk a little bit about income taxes. You
Chair
Unverified
52:05
mentioned earlier that we have both an individual income tax and a corporate income tax. The individual income tax was first enacted in Arkansas back in 1929, and in Arkansas you calculate your income tax due very much for state tax purposes as you do for federal tax purposes you start with your total gross income you subtract some adjustments that are allowed by law you subtract either a standard or itemized deduction and then you determine your gross tax
liability what your gross tax is then you subtract any credits any prepayments OR OTHER CREDITS THAT YOU HAVE TO GET DOWN TO THE ACTUAL AMOUNT OF TAX YOU OWE. I MENTIONED EARLIER THE TAX RATES THAT THE CURRENT 7% TAX BRACKET FOR 2012 WILL KICK IN AT $34,000 OF TAXABLE INCOME. AND ONE OF THE THINGS I WANT TO POINT OUT IS THAT THAT DOESN'T MEAN $34,000 OF GROSS INCOME. SOMEONE WITH $34,000 IN TAXABLE INCOME MAY HAVE HAD SUBSTANTIALLY MORE THAN THAT IN
actual gross income because they would get to deduct itemized deductions and other things off of that. So $34,000 is taxable income after your standard deductions and other adjustments. Also in conversations I've had with folks, I've seen confusion about how the Arkansas graduated tax rate applies. if Arkansas taxes the first three thousand dollars I believe it is of income at one percent and then the next three or six thousand dollars is taxed
at two and a half percent and so forth the confusion I had seen was some folks thought well when you have income taxable income of thirty four thousand then there's a flat seven percent tax bracket and that's not correct instead the the first portion of your income is taxed at a lower rate and then the next portion increases in rate and increases step by step until you reach the seven percent bracket which only applies to that portion of your income in excess of
thirty four thousand dollars also Arkansas allows taxpayers to that are married both a husband and wife who both work to each go through the tax rate on their separate income so a husband and wife each making thirty four thousand in taxable income could have sixty eight thousand dollars total in taxable income before one penny of their income would be subject to the seven percent bracket as I think mr. Wilson mentioned earlier for about 15 18 years the
Arkansas income tax rates have been indexed for inflation that's why the current statute would look you'd see the 7% bracket kicking in at 25,000 in the statute when actually because of indexing we're at $34,000 mr. choice can
you explain to me a little bit how the the low-income tax table functions in in Arkansas if I've got that right absolutely
Chair
Unverified
55:24
Arkansas like many states has
removed folks from the poverty level from the income tax rolls as that decision was being made by this General Assembly some years ago the question came up what about the guy who makes $1 more than the poverty level is that guy going to get hit with a big tax increase because he goes from no income tax to income tax on his full income the answer to that was the low income table the General Assembly adopted the low income tax table as a buffer to gradually ease
that person who's just above the poverty level back into the regular tax tables so as that poor person makes a little more than the poverty level they pay tax at a reduced rate about one-third of the regular tax till they get to about it's about I think a hundred and thirty three percent of the poverty level then when they get above that they go to about 60 per 66 percent of the tax they would have otherwise paid up till they get to about a hundred and sixty seven
percent of the poverty level at which point they began paying at the regular rates as everyone else essentially the low income tables are a buffer to gradually ease that poor working taxpayer back into the tax rolls as their income increases thank you
representative Westerman you recognize for a question thank
Representative Bruce Westerman
Unverified
56:52
you mr. thank you mr. chair I want to follow up on the question representative Lee raised do you intend to do a financial impact statement on Medicaid expansion
John Tyson
Unverified
57:07
we DHS we have no plans to do anything separate
Representative Bruce Westerman
Unverified
57:19
on what DHS has done is that under DFNA or is can DHS make those revenue or financial impact statements or is that a
Speaker 123
57:29
duty of DFNA our duty is to provide our forecast
John Tyson
Unverified
57:33
based on the current law and that's what we provide we use our economic indicators that we
get on a national basis and they make assumptions based on what the economy is and what the laws are, and they've made assumptions based on the state of the law with Medicaid being adopted and all those. So we start with those, and then we take any changes in Arkansas. So all of that would be taken into account in our macroeconomic forecast that we take, and then it's customized for us. So there's no reason for us to separate that out. We use those services to do that on a macroeconomic level.
Representative Bruce Westerman
Unverified
58:14
So if a bill gets introduced for Medicaid expansion, there will be no financial impact statement
John Tyson
Unverified
58:20
from DF&A? The only way that we would add anything to our forecast is if there's
something on a national level that would increase the impact from the total what's going on with the new Medicaid laws and the new health laws and all that to be built back in our macroeconomic forecast because we've taken that into account already in our forecast.
So we're not adding anything into that. All that's included in our current forecast. I'm not
Representative Bruce Westerman
Unverified
58:54
sure I'll follow that completely, but we'll probably have more discussions on it.
Chair
Unverified
59:05
Yes, sir. We'll be glad to talk to you about that. I'm finished talking about individual income taxes unless there's a question just a couple of very brief comments about the corporate income tax Arkansas also import imposes a graduated corporate income tax rate the rate varies from 1% up to 6.5% the top 6.5% rate
kicks in on incomes in excess of $100,000 for corporations, and you may have wondered how a corporation that does business in multiple states and has activities in multiple states, how they determine what income tax they pay to Arkansas, where maybe they just market versus another state where they have their manufacturing facility versus another state where they have their corporate office, and the answer is there's a statutory formula that's used based on property payroll and sales within Arkansas versus property
payroll and sales everywhere and that apportionment formula is used to a portion a percentage of that multi-state corporations income to Arkansas as I mentioned at the beginning Arkansas does the DFA does administer about 40 different taxes I've just mentioned three of them very briefly be glad to answer any questions about those three or about any of the others that we administer that you might wish
Representative Douglas House
Unverified
1:00:27
representative house you recognize for a
question thank you mr. chairman I've been paying attention to to the things that you've been talking about but I want to ask you a question about some things that you did not talk about special revenues as I was looking through the materials that were provided to us this morning I noticed a number of income generating activities of state government that do not appear on any of this material I understand this is not your material let's just use for example revenues generated by the Attorney General's office fines fees costs paid
to the court system dues paid dues or membership license fees paid to various agencies within the state now some I found in the book it says DF and a does monitor these I guess my question is tell me any funds or fees that you do not monitor
John Tyson
Unverified
1:01:27
mr. chairman I'm trying to think offhand of any that we don't monitor we in the
sense of monitoring we tie in the entire state funding in a
consolidated annual financial reports called the CAFR for short so from an accounting standpoint again DFA does a lot of a lot of different things but in our controller function we provide a financial report that looks into all of those it's audited by legislative audit does the audit on that so we do look at that and monitor those but we're not responsible for collecting those for instance you know you see the court fees that we've had the issues with lately we don't collect that money you know that's done through the courts although it's
ultimately ultimately paid so we keep up the financial reporting we keep the state's financial condition by doing that and it all ties in together and these monthly reports that you'll see which include almost all the fees that are out there so we do monitor it from that level it might be something you might want to talk to Paul Lothian who's the head of our office of accounting and kind of get an idea of what's what's out there there's some special revenues we do collect and we do report we'll be coming to this committee or others and
we'll be testifying if there's a bill that does those as to what goes on there's some that would impact the state budget that we don't collect so we may be in this committee or others testifying on those because even though we don't collect them there would have an impact on the state budget it's It is a complicated structure out there. What we tend to focus on in this committee usually are going to be those general revenue taxes, which fund the general government, plus those big special revenue taxes like the highway fuel taxes
and those kind of things. But there will be times that we'll deal with those other taxes, and we can get you an accounting of those and a listing of those and be glad to talk to you about any, if you have a
Representative Douglas House
Unverified
1:03:41
particular interest in them as we go along. Well, thank you. Yes, the title of the committee is Revenue and Tax, and I appreciate that your focus is on tax revenues and these others that you're statutorily. And perhaps my question perhaps should be redirected to our friends at BLR.
Do you have a similar handbook for those? Does BLR have a similar handbook for special revenues, fees, fines, and such that
are collected by independent agencies that are not monitored by DF&A? Richard, do you want to
come to the committee and answer that? Yes, the special
Speaker 24
1:04:25
revenues, just like general revenues, run through the Treasury, and most
Speaker 7
1:04:30
of them are in this tax handbook. There are some fees that are in the handbook that are cash, which is just another way of saying that an agency might have their own bank account, not run money through the Treasury. They have a cash account, something like Cosmetology that licenses their certified people out there every year. They have a cash account. They still have to come in front of the Budget Committee for appropriation, which is authority
to spend. So not everything runs through the Treasury, but most of the special revenues that you'll you'll be looking for already in this handbook. Representative Howes, does that answer your
questions satisfactorily? Mr. Chairman, no, I don't think it does,
Representative Douglas House
Unverified
1:05:22
but I appreciate the answer anyway. I think it's honest. I think there are so many unanswered questions that we'll be taking a look at over the course
of the next couple of years. Thank you.
John Tyson
Unverified
1:05:38
All right. Sounds good. Mr. Leathers. One, Director Richard Weiss wanted me to make sure that we pointed out to the committee
that a lot of this is taken up in budget, and you'll get an understanding of this through the budget and related committees. And one of the things that those revenues that are collected is cash revenues and other revenues by agencies. They go through that process, and part of that is they make a certification of how much
they're going to collect. all that is considered and budgeted in that budgeting process and where the money is appropriated and funded so you'll be seeing a lot of that in those committees as you go along that might be helpful to you help you with that understanding all right
thank you very much does anyone else have any questions for Mr. Leathers or Mr. Tice? I don't see any.
Does anybody have any other business they want to bring before the committee as we've completed our agenda? If not, could I get a motion to adjourn? So moved, all in favor. We're adjourned.
Agenda
Call to Order
Comments by Chair
Review of Revenue and Tax Committee Resources
Discussion of General Revenue Distribution
Overview of State Taxes
Other Business
Documents
No documents posted.
Speakers
Representative Charlie Collins Chair
Unverified
Chair
Unverified
Speaker 7
Representative Nate Bell
Unverified
Representative Tommy Wren
Unverified
Representative Denny Altes
Unverified
Speaker 24
Speaker 26
Speaker 6
Speaker 35
Speaker 15
Speaker 42
Kim Arnell
Unverified
Speaker 46
Speaker 51
Representative Bruce Westerman
Unverified
Speaker 54
Speaker 58
Speaker 60
Speaker 63
Representative Tommy Thompson
Unverified
Speaker 74
Representative Stephen Meeks Chair
Unverified
John Tyson
Unverified
Speaker 87
Speaker 92
Speaker 98
Speaker 80
Representative John K. Hutchison Chair
Unverified
Speaker 112
Speaker 115
Speaker 123
Representative Douglas House
Unverified