House Revenue & Taxation Committee
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Representative Tracy Pennartz
Unverified
0:00
Thank you so much, Mr. Chairman. It's a pleasure to be back before this committee. I'm here presenting a asking for concurrence in a Senate amendment, and I assume that y'all have that in your packet, and I'd be glad to explain the amendment. Representative Love. Motion at the proper time. Let me just say that the amendment, Mr. Chairman and colleagues, takes the hit to GR down to
a million and then takes away the hit to GR and allows it to be funded if and only if my new best friend, Mr. Richard Weiss, says that there is money in GIF. And so that's the simple amendment, and I would be glad to respond. And also it deletes the emergency clause. So I would be glad to respond to any questions, Mr. Chairman. Thank you.
Any questions, members, on the amendment?
Representative Kelley Linck
Unverified
1:10
Representative Link. I'm not sure if I'm asking you or Representative Bernard, it looks like the amendment is already engrossed in this bill that we have. It may
Representative Tracy Pennartz
Unverified
1:18
be. It came out of the Senate late around 3 o'clock, so I wasn't sure whether they had time to engross it or not.
Representative Kelley Linck
Unverified
1:25
It appears so. I couldn't find any difference in the amendment that I was reading versus the bill, so I wasn't sure what we changed. So I'm glad you
Representative Tracy Pennartz
Unverified
1:32
explained it. Thank you. Yeah, I talked to the Senate late, and they, at that time, had not engrossed it, but I'm glad to see that it was engrossed.
Representative Kelley Linck
Unverified
1:41
It is engrossed. Okay. So what we need to do is not necessarily motion on
Representative Mark Biviano
Unverified
1:47
the amendment, but on the bill as amended? Would that be correct? We're going to entertain a motion to concur in the Senate amendment at the proper time. The amendment has been engrossed in the bill, but just in order for you to see what the amendment was, you've got the amendment. That's why it's in separate cover. Any more questions? Anybody from the audience want to talk about the bill? Speak for it?
Speak against it? Okay, what's the pleasure of the committee?
Speaker 17
2:19
Representative Love? Motion do pass. This is
Representative Mark Biviano
Unverified
2:22
amended. Okay. Is your motion a motion to concur and send an amendment? Yes. Okay. All right. We have a motion to concur in the Senate Amendment to House Bill 1118. Any discussion? All in favor say aye. Aye. Any opposed? Let
Representative Tracy Pennartz
Unverified
2:38
me just say my thanks to this committee on this 1118.
You vetted it well, and I'm a firm believer
in that process, and I just want to say thank you, and thank you
Representative Mark Biviano
Unverified
2:50
for your concurrence. Thank you. Thank you, Tracy. Good to see you. See you in a little bit. All right, Representative Westerman, we want to continue where we left off yesterday on HB 1553. You're recognized.
Thank you, Mr. Chairman. I believe we had gone through just a
general explanation of the bill and how that if we exempted new road construction that's funded with bonds from sales tax, how it would always be a cost savings to the state. In the handout, I've got some numbers from the highway department, and based on the impact statement of $62.7 million in sales tax from the proposed bonded projects,
you can see that with the same bond issue, if we didn't charge sales tax, we could do over 12 miles of road widening from two to five lanes, over 20 miles of rural two-lane road, six miles of interstate, 15 to 20 miles of interstate overlay with the same money if we just put that sales tax to use on the road project rather than putting it in the general revenues.
If you look at the flow chart, you can see that you're essentially borrowing that sales tax at the same rate of the bond that you're borrowing. And I'll answer any questions. I'm
sorry. Representative Meeks, you're recognized. Welcome back, Mr. Chairman. And my
Representative Stephen Meeks
Unverified
4:59
question actually is more towards DF&A. I'm just curious if they had a position on this or any thoughts on this bill,
if it's proper for me to ask that at this
time. I'm sure they've got some thoughts on it, but I'll answer any questions
Representative Kelley Linck
Unverified
5:23
for me. Representative Link, you're recognized. We probably need somebody from the Highway Department to help answer this, or maybe you know, but right now isn't a lot of the money we spend on highways federal matching funds.
Right. And through the amending process, we've got the bill amended now to where it only applies to state funds. It took all the federal funds out of it. So we would
Representative Kelley Linck
Unverified
5:50
require that sales tax be paid on materials purchased with the federal part of the funding, but not the state part of the funding. Or maybe I'm, I hope I'm
not going somewhere that both of us lost. With bonds that are guaranteed with state funding. Those projects would be self-tax exempt.
Representative Kelley Linck
Unverified
6:10
Okay. So we charge the Fed sales
tax. We don't charge the state. Right. Okay. So if any of the road funding mechanisms pass and we go out and do the $2.4 billion in bonds, then that's going to equate to about $62.7 million worth of sales tax. And the reason I was hoping to get this through this session is because if we miss that window when the bonds are purchased, then we miss the opportunity.
But we could put it in interim study, and it would probably be about a three-minute study
that says we miss the opportunity. Representative Viviano, you recognize. Motion at the proper time. Okay. any more questions for Representative Westerman anybody from the audience want to speak for the bill against the bill Mr. Leathers you recognize Mr. Chairman
Speaker 42
7:23
Tim Leathers from DFA our main opposition to the bill is because there's a
Speaker 43
7:28
general revenue to impact right now based on the bond issues that we currently have. It's about $1.8 million, and the estimates by the numbers we've gotten from the Highway Department, if the laws were passed and there was additional bonding was out there, it would be about a $12 million loss per year, the total being about that $62 million that was
talked about. I want to point out a few things, and that is it's not the government entity that pays the tax. It's the contractors and the subcontractors. So when you give this tax break, it's for those people making purchases out there, and there's no guarantee based on the pricing of the contract, how this is passed along, that it will not be built into the contract. So there's no guarantee that it will inure to the benefit of the local government based
on the contract. You know, they could try to make that part of the contract, but there's no guarantee of that. And it's out there in the field for those people that are buying it, not the government that's getting exempt. There is the provision of if you finance this in, then you pay interest on it, but that's no different than any other cost that's a total part of the contract. And I think Mr. Collins yesterday hit the nail on the head that, you know, if you wanted to reduce the – not pay the interest on it, then you reduce the amount of the contract
by making an upfront payment of the amount that you think approximate the tax. It's just like if you buy a new car, you pay the sales tax so you can finance it in and that's kind of your decision. So that could be done. But the main issue we have is that when we make the forecast, we build in certain assumptions based on the historical amount that we've had for road contracting out there. And we have an amount built in, and this takes away from the general revenue that we forecast.
Members, any questions for Mr. Leathers? Representative Meeks, you're recognized. Beyond
Representative Stephen Meeks
Unverified
9:45
that, does the state pay the sales tax now ahead of time so that we don't pay interest on the sales tax? Because basically, you know, what Mr. Westman is trying to prevent is for us from paying interest on money that we're paying
Speaker 43
10:03
ourselves. MR. Well, the these contracts are either the highway department or some local government
entity would do the contract. So what they would do is just not contract for that and pay part of the contract because it's whatever it is would be built in the contract price if it is at all. And that's the point I'm making is that it's the subcontractors and contractors that actually go buy the concrete or the steel or whatever and make those purchases down the line. It's not the government entity, but the assumption that is made by Mr. Westerman is it is included
as a price in the contract, and that as such, if you can attribute so much of that to sales tax, then they're paying interest on that by it being built in. And if they wanted to, the point would be that they could just pay a certain amount that approximated that, and they wouldn't have the interest that Mr. Collins made. But they don't pay the sales tax. It's downline where the contractors actually pay the contract. It's not the government entity. So you're saying that the
Representative Stephen Meeks
Unverified
11:12
contractor may or may not pass on the cost of the tax back to the state?
Speaker 43
11:16
Is that kind of a... There's no guarantee of that. Okay. All right. Thank you. One point I wanted to make, too, just for clarification about the bill for the federal contractors, kind of in relation to this, is that the way the amendment was written, And if it is a bond of the federal government, it would not be taxable. And I don't think the federal government ever bonds, but I think, as Mr. Westerman said, that it would still be exempt if you had some federal money that you could use as a match for bonding, a repayment of bonding.
Representative Mark Biviano
Unverified
11:48
It would still be taxable. I don't know if I'm thinking too hard or too far
Representative Kelley Linck
Unverified
12:05
or if I'm not thinking after last night, but right now our contractors, are they purchasing a majority or all their materials
Speaker 51
12:20
from Arkansas suppliers? MR. I'm no expert
Speaker 43
12:25
in there other than seeing audits that we've had over the years, and it would depend on the contract. You know, if it's things like concrete and things like that, it's local. If it's specialized steel,
Representative Kelley Linck
Unverified
12:37
it might not be. I'm just wondering if knocking the sales tax off of
those products for Arkansas purchased products would increase the amount of sales that Arkansas companies
Speaker 43
12:47
have in the process. MR. exempt in the sales tax, then it's exempt in the use tax also.
Okay, thank you. So they'd be the same.
Representative Mark Biviano
Unverified
12:58
Okay, thank you. Representative Bibiano, your recuse. Mr. Lyman, what do you think, what position would the Highway Department take on this? Do
Speaker 43
13:06
you have an opinion on that? I mean, I don't know. They're not here, I don't guess, so
Representative Mark Biviano
Unverified
13:12
they could testify if they had one. I'm not aware. Just based on your experience on working on
these types of projects, do you think
Speaker 43
13:20
they would be supportive of this? So far as I know, they've never made any kind of a question of us or ask us about
exempting their purchases because, you know, generally the purchases of all state entities are subject to the tax.
Representative Homer Lenderman
Unverified
13:44
Okay. Thank you. Mr. Leatherman, you're recognized. Thank you, Mr. Chair. Mr. Leathers, as usual, I'm a little confused here. Mr. Westerman is testifying that we will see a substantial savings,
and yet DF&A shows that forecast year 2014, a negative $12.5 million impact. And in forecast year 2013, a $1.65 million impact on state revenues. Okay, there's got to be a true answer somewhere. Well, the difference is we're
Speaker 43
14:26
talking about who's saving and who's coming out ahead.
The state and our general revenues lose because we give up the sales tax that we depend on and we've budgeted as built into a part of our base for road construction. So the state loses the general revenue and the special revenues that we have for educational excellence and educational adequacy, the conservation one-eighth tax. Those are the things that those funds would lose. And then the local government entity or the State Highway Department, the contracting
entity would, assuming that the people that bought this would pass it on to them, there's no guarantee of that, but what Mr. Westerman is showing is that they would gain because they would not have to pay the tax to the state, so that offsets what they have. And they would also gain because they would not bond this and wouldn't have the interest. So the interest is the difference, but, you know, my point is part of that is the government
entity doesn't really pay the tax on this. It's the contractor out there, so there's no guarantee that that ultimately even happens when they start doing their pricing. You know, if they want to up their price, the percentage for that, then, you know, they might be able to do that and remain competitive there's certainly no guarantee of that thank you thank you mr. chair you represent a
Representative Nate Bell
Unverified
16:08
bill you recognize mr. leathers I'm having a real hard time understanding your logic here I am in
the building contracting business and it's my understanding that projects of this nature are competitively bid. Is that correct? That's correct. The margins that are in competitively bid contracts don't allow you to absorb sales tax in any situation that I've ever seen in my 20 odd years in the business. The fact of the matter is the customer ultimately winds up paying any part of that contract and sales tax is part of that contract. The customer is ultimately winding up paying that because the
contractor passes it on. There's not that kind of margin in these projects. We don't have the luxury in private business of doing what government does and simply passing costs on to somebody else. Our costs are paid by our consumers. And if you make a purchase from me and I pay tax, you're ultimately paying that tax. I'm working on a 1% or 2% net on the end of the contract. I can't eat 6%. I don't understand how you're getting to that point,
and I'd sure like an explanation of how you would expect somebody operating on a 1% margin to not pass that savings along.
Speaker 43
17:29
I didn't say you weren't passing the – that you weren't currently absorbing the tax. I'm saying that there's no guarantee that the full amount of it gets back to the government entity because the margin might go from 1% to 2%. There's no point being that the government entity doesn't pay the tax.
Representative Nate Bell
Unverified
17:51
Again, I would just reiterate the bid openings that I've attended, and I've attended quite a few of them over the years,
the margin between different contractors on these projects is very, very small. There's nobody that has not factored in, particularly on material costs. You know, the variable that we all deal with is labor. And material costs, pretty much all the contractors involved in a project have the same material cost. If that material cost is decreased by the rate of taxation, everybody's building their bid based on that. Again, I don't see how you make the connection,
and I'd like some explanation of how you say that that's not being passed on. I
Speaker 43
18:34
didn't say it wasn't. I said there's no guarantee of that. Well, I
Representative Mark Biviano
Unverified
18:43
respectfully disagree. Yes, sir. Okay, members, Mr. Leathers has spoken against the bill. Does anybody in the audience like to speak for the bill? Representative
Speaker 62
18:49
Westerman, would you like to close for your bill? Thank you, Mr. Chair.
Committee, one thing I do want to point out is that the last major road construction bonds were passed, I think it was in 2001, 2002, the Garvey bonds, all of these funds that this bill would have affected would have been on new bonds for new construction as part of the highway construction plan. So we're talking about lost revenue to the state, but if we don't do these projects,
that revenue wouldn't be there anyhow. And if you look at the second page, it's just a chart that it's just a simple graph that shows different terms and different bond rates. And the multiplier on the left-hand side, it shows that you always save more than the cost. So, you know, if the cost is $100 million in lost revenue, you're going to save more than $100 million in expenses.
It's just a simple matter of math. And Representative Bell pointed out the bidding process in a free market. One person can't just keep the sales tax in his bid and be the successful bidder. The
market will take care of that. Representative Viviano, you
recognize for motion. I do pass.
Representative Mark Biviano
Unverified
20:35
Mr. Cowan, okay, any discussion or questions on the motion? Okay, if not, all in favor say aye. Aye. Any opposed? No. Man, that's a tough one. I think the no's have it, Mr. Westman. I didn't even know
you were going to vote on it. I thought we were
Representative Mark Biviano
Unverified
20:59
going to put it in the interim study. Okay. Well, he got a roll call. No, Mr. Westman can put it in interim study on his own, but I've got – we've had a – you want the roll call?
Yeah, we'll go ahead and roll call. That's your
Representative Mark Biviano
Unverified
21:21
call, Mr. Chair. I saw two hands. That's the rule, so – Go ahead.
Speaker 73
21:37
Mr. Moore, Mr. Garner, Mr. Garner, Mr. Patterson, Mr. Lindsey, Mr. Lindsey, Mr. Ingram, Mr. Ingram, Mr. Curve, Mr. Burris, Mr. Meade, Mr. Lane, Mr. Lange, Mr. Love.
Speaker 82
21:55
No. Viviano? Yes. Mr. Collins? Mr. Collins. Mr. Linderman? Yes. Mr. Lee? No. Mr. Westerman?
Speaker 77
22:16
No. Mr. Barrett? Of course, I mean, yes. Mr. Collins-Smith? Yes. Mr. Bell? Yes. Mr. Cowley? No.
Speaker 62
22:25
Okay, Representative Westman, the bill failed, but you can go to,
Representative Mark Biviano
Unverified
22:41
if you want to do that, you still can go to withdraw and put it in an interim study. I was making sure we had clarification on that after the vote affected that and it did not. But you can still do that.
So do I need to do
Representative Mark Biviano
Unverified
23:00
anything today? Yeah. Amber. Yeah, Amber. Okay. Yeah, okay. Thank you. Very good presentation. Does anybody else want to run a bill today? You know, barring some extraordinary circumstances that are unknown, this is probably our last meeting, but I want to say it's been a very much of a very much appreciated this group and it's been a great joy to be a part of this committee so I think thanks to all
of you so represent Barris you recognize
Representative John Burris
Unverified
23:33
thank you mr. chairman I don't want to start too big of a trend here but I also had to say echo some comments y'all are like a good family you know I love you but you'd be really annoying sometimes but what I do love you all and it's been a fun committee then thank you mr. Chairman, for all your leadership. All right. Thank you all. Let's have a good day. Stand adjourned.
Agenda
Documents
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Speakers
Representative Tracy Pennartz
Unverified
Representative Davy Carter Chair
Unverified
Representative Kelley Linck
Unverified
Representative Mark Biviano
Unverified
Speaker 17
Representative Bruce Westerman Chair
Unverified
Representative Stephen Meeks
Unverified
Speaker 42
Speaker 43
Speaker 51
Representative Homer Lenderman
Unverified
Representative Nate Bell
Unverified
Speaker 62
Speaker 73
Speaker 82
Speaker 77
Representative John Burris
Unverified