House Revenue and Taxation Committee
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Bills discussed (3)
| Bill | Title | Sponsor | Status |
|---|---|---|---|
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HB1012
· 1 mention in transcript
Matched: “to explain House Bill 1012. Thank you, Mr. Chairman. Thank you, members, and thank you…”
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Pre-2017 bill | ||
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HB1016
· 1 mention in transcript
Matched: “I understand Representative Baird has withdrew his HB 1016. Representative Woods, are you here to run 1042? Representa…”
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Pre-2017 bill | ||
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HB12
· 1 mention in transcript
Matched: “Representative Westerman Are you prepared to run House Bill 12-33? Pass Representative Gene House Bill 12-55 Tuesday Repre…”
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Pre-2017 bill |
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Speaker 2
0:00
Chair of the Quorum, thanks for your patience. We've
Chair
Unverified
0:07
called a meeting to order. A few housekeeping items. I guess we canceled the meeting that we were going to have our picture on, so I apologize for that without speaking to the boss lady here next to me. But our pictures have been rescheduled for February the 24th, so we'll be ready to go on that. Okay, I'm going to read down the agenda. I understand we only have one bill to present today.
I understand Representative Baird has withdrew his HB 1016. Representative Woods, are you here to run 1042? Representative Lindsey, are you prepared to run 1056? All right. We'll note it. Representative Penartz, I think she's going to run hers on Thursday. Representative Lee is not running hers today Representative Pernartz on the 11-37 We've also will be Thursday
Representative Westerman Are you prepared to run House Bill 12-33? Pass Representative Gene House Bill 12-55 Tuesday Representative Ingram 12-57 He's going to pass You know, without objection, I'd like to move Representative Gary Smith's Bill 1012 off the deferred list. He has had some people that have driven into the Capitol today, and, you know, I'd like to accommodate his guest and be able to testify on the bill.
So without objection, Representative Smith, you're recognized
Representative Garry L. Smith
Unverified
1:48
to explain House Bill 1012. Thank you, Mr. Chairman. Thank you, members, and thank you for your
allowing us to testify today. I have a friend of mine here, Mr. James Langley, representing Smackover Motors. And he and I talked about this bill several weeks back, in fact, back in the summer. And I said, I'd like to run this bill. He said, I'd like to come and testify and show the impact of what removing the sales
and use tax on manufacturer or dealer's rebate of a new vehicle would do for not just his business, but other businesses as well. With that, I'd like to introduce Mr. James Langley, Smackover Motors, and committee. Thank you for allowing us to testify today. Mr. Lang, you're recognized. Thank you. Thank you for allowing me
Speaker 16
2:36
to testify is to start with a story. I'm known for telling stories. In 1974, at the age of 30, I became a Ford dealer in a little town in Smackover, Arkansas.
We sold new trucks for $1,795. You wanted a bumper with our name on it, it cost $1,895. We sold fully loaded family sedans for $5,500. Rebates were something out in the future that we'd never heard of. Like our car
Speaker 13
3:07
prices, rebates started out small, $3,500. Nobody paid much attention to them.
Speaker 16
3:13
Around Christmas time, some dealers would advertise you could buy a family car
and to take the rebate money and buy Christmas for your family at the same time. The tax on a rebate at that time ranged from $15 to $20, much less than today. Like the prices of cars, rebates have substantially increased. That same truck that cost $1,895 now costs $13,000 to $14,000. That family sedan that costs $5,500, $30,000 is not unusual.
Rebates are as high as $10,000, depending on the make and model that you choose. Manufacturers, each year as they project next year's sales, make allocations for rebates. This is budgeted in their cost, and they move it from car line to car line so the slower models will start selling. Each year, rebates go up, and so do the sales tax on rebates.
At the present time, it's not uncommon for a rebate, the sales tax on a rebate to be $500 or $600. And if you don't think $500 makes any difference when you're trying to sell a new car, just price your car $500 more than your neighbor's and see where you stand. Our sister states of Louisiana, Texas, Oklahoma, and Missouri do not charge sales tax on rebates. However, Tennessee and Mississippi do.
As a new car dealer, I'm opposed to sales tax on rebates for the following reason. It's no secret. The automobile business the last few years has been a tough industry to be in. Many of our dealers that we used to know in the state aren't here anymore. Every sale is important. The $500 tax doesn't seem like much to some people, but to a retired couple, it may keep them from buying a new car, force them into the used car market, or even out of the market altogether.
Rebates also cause restorations to go to other states in some situations, and I won't explain this. My dealership is located some 45 miles north of the Louisiana line. While Louisiana does not charge sales tax and preparing to come up here, I met with my F and I lady, and we went back through the sales for this year, for the past year. We had 169 rebated sales. Not all new car sales qualify for rebates.
Of the 169 rebated sales, we keep up with restorations because we won't credit for everything we sell in our market
Speaker 25
6:12
area. As we look back through our market area
Speaker 16
6:15
restoration, I picked out 12 restorations that used to be in Arkansas that are now in Louisiana. In following up on one of these sales, I casually made the remark, why did you restore your truck in Louisiana this time? This is a business that has a location in South Arkansas and a location in North Louisiana. His reply was, I saved $500 on sales tax.
But not only did the state of Arkansas lose the sales tax on the rebate, they lost the sales tax on the sale itself. And finally, I think that a rebate is a cost reduction. Since the manufacturer allocates this in the cost of the vehicle and then takes it off the cost, If you look at your local newspaper, and on the way up here in the middle of the rain, for two reasons, I bought a newspaper. And I couldn't help. I wanted to pick out an ad that wasn't mine.
And if you notice, all these prices are after rebates. That tells me that the rebate is not part of the selling price, but has already been discounted and is a cost reduction. For those reasons, I hope you'll consider removing the sales tax from the rebates of new car vehicles. Thank you. Thank
Chair
Unverified
7:35
you, Mr. Lang. Representative Barris, you're recognized for a question.
Representative Barris
Unverified
7:43
Thank you, Mr. Chairman, and thank you for the explanation. Representative Smith, you and I have spoken about this bill. It's been a while back. But, you know, I want to – I think you're – it's something that I think we can all agree in spirit on what you're trying to do. My question, it's the one that I've asked so far on all the proposed legislation. Well, actually, let me back up and just say, have you had a chance to look at the impact statement from DF&A yet? Do you think that's an accurate number? Well,
Representative Garry L. Smith
Unverified
8:13
it's a number that we know would cost the state in general revenue.
But I think I can argue that an offset of that would negate that number and bring it down. That is, like Mr. Langley explained, we're losing money because we make this impairment. And so I'd like to, and I can't prove how much that is, but the physical impact statement that the department has offered us is that they would lose that many dollars on the last year's sales, $13, $14 million, is that right, I believe? Yes, sir. Yeah, for 2013, 8.95 in 2012. Right. But I would like to argue that if we remove this barrier, that people like James Langley and other dealers all across the state,
but most especially on the borders, would realize increased sales, and so it would offset that. And that's something I can't put a handle on right now. But this is a good business bill, and we need to encourage businesses. As Mr. Langley explained, a lot of our dealers have been taken out of business. One of his neighbors right there in Smackover, Reap Chevrolet, is an open building now. And they've sold Chevrolets since 1920? The late 30s. The late 30s. And they went away. And, you know, GM had all of its problems, and REAP was one of the casualties. And a lot of people worked there, and those people had to find other employment.
It's not like bringing in a 500-employee factory, I agree, but it's sales and it's discouragement. I've had people tell me, I didn't buy a new car because I didn't want to pay that rebate, and it discouraged me from doing that. I've had others tell me I'm going out of state to buy my new vehicle. And so that's the part I think I can argue that it's not really that large an impact. But how much would the differential be, I can't prove it. You'd argue that more people would buy their cars
Representative Barris
Unverified
9:52
in state as opposed to across the state lines. It would be more favorable to that business.
Speaker 13
9:57
Yes, sir. Let me interject something here. I think there's a misconception. I don't know that more people
Speaker 16
10:06
would buy vehicles. Restoration is what sales tax is based on. where the car is registered. If you register in Louisiana, then you pay Louisiana sales tax. If you register in Arkansas, it goes back to your home address. I think that the increase in business would not come from restoration, would come from encouraging people to buy a new rather than used.
And anything you can do, a $500 rebate used to encourage people to buy a new car. If you take $500 off sales tax, it's just like a $500 rebate. I think it would be a business encouragement. I don't see this as making people come from Louisiana to Arkansas to buy cars. They do that now, and we register them in Louisiana, and there's no tax in Arkansas. If you buy in Louisiana, there's no tax in Louisiana. You register in Arkansas.
But it would be a stimulus. I think that in
Representative Barris
Unverified
11:09
Arkansas it would encourage some people to buy new. Okay. One more question, if I can, or may, Mr. Chairman. It's the question of the year, I guess, and it's the one that I think is going to be asked of every tax cutting legislation that we see. Working on the current impact, do you have any suggestions on how we might pay for this? I'm on joint
Representative Garry L. Smith
Unverified
11:28
budget. I've got a couple of options, and there are some things that I'd like to talk to you about in private that would reflect that.
And I know the committee today, if I'm not mistaken, Mr. Chairman, y'all probably won't vote on it today to make sure as the session progresses, how many of these good business bills and how many good customer bills and those kind of things we're going to take a, I guess, a look-see at all of that. So I don't expect a vote today. But I do appreciate you listening to our discussion and keeping that in mind that I think this is one of those things that would encourage business and keep people like James Langley and his folks occupied. They've got people that's been with them many years.
They've got a lot of people that's experienced. They know they're good diesel mechanics. They know what they're doing, and they're people to go to. You might buy a vehicle some other place and go to James Langley if you've got a diesel mechanic problem because they've got the best in the country down there. But we don't need to put them out of business, and this is something that I think would help those businesses stay in place. And so to answer your question, yes, sir, I have got a couple of suggestions, but I don't think it needs to be spoken of right now because it will take more than my vote in joint budget. but I'd like to have your ear. Thank
Representative John Burris
Unverified
12:34
you. Well, I like the spirit of what you're trying to do,
and I appreciate it. I think it makes sense. Thank you. Thank you, sir. Mr. Langley,
Chair
Unverified
12:43
to make sure I understand, and it's been a while since I've purchased a new vehicle, I guess. You probably have one that I would like. On the bill of sale, if I buy a pickup truck and you sell it to me for $40,000, and then there's a $10,000 rebate. Tell me where that credit goes on the bill of sale and how we, on the paperwork,
where it ends up at the bottom.
Speaker 13
13:15
Okay, on the invoice itself, you start where you're selling price, and let's
Speaker 16
13:19
assume $40,000, to make math easier, let's assume you have a trade-in worth $10,000, and then you break the rebate out separate. That's required that all dealers do that, and you break it out on the invoice, and that would be $10,000 if you want to use those figures and leave in a trading difference of $20,000. You are taxed at the Revenue Department. They take the $40,000 price, less your trade in, and you are presently taxed on $30,000.
Representative Davy Carter
Unverified
13:47
Is that because of the way – who requires you to separate the rebate out? Well,
Speaker 16
13:54
that's a requirement that there's actually a fine if dealers don't do that. But it came down from the Department of Finance and Administration. Okay. Representative Kerr, you recognize for a question? Yes,
Chair
Unverified
14:04
sir. Representative Smith, thank you for running this bill. I had one similar to that
Representative Allen Kerr
Unverified
14:12
they were working on down there, and I'm glad to say I don't have to now.
Okay. I wanted to ask how, even if you have a trade-in, is the rebate still treated the same? Yes,
Speaker 53
14:32
sir. But the cost of the trade-in is taken
Speaker 24
14:35
off of the total for tax purposes. You start with the selling price. Right. I mean,
Speaker 16
14:40
I don't know when we've ever listed one, but you start with the selling price, whatever that may be, and I just assume $40,000. Then you allow for the trade-in, and then on a separate line you allow for the rebate
so the Department of Finance Administration can, in fact, tax you on the rebate. And that is a requirement for dealers to do so. New car dealers are required to do that.
Speaker 36
15:09
Okay. Did that answer your question? Yeah, that answered my question. I'm just trying to associate this
Representative Allen Kerr
Unverified
15:13
with other rebates on other items. Like if you buy a cell phone and there's a $100 rebate that you have to mail in, I guess you do pay taxes on that entire amount and
Speaker 57
15:23
then wait for the rebate to come back.
In that case, the rebate comes directly to you, and you pay taxes on the wholesale
Speaker 58
15:30
price. Right. That's how my phone was arranged. Right. Technically, you're actually paying tax on that used vehicle twice. Yes,
Representative Allen Kerr
Unverified
15:37
sir. Am I not saying that right? Yes, sir, you are. That's the thing that disturbs me. I thought that's where you were headed. Yeah, it was. That's the thing that disturbs me also. All right. Well, thank you, gentlemen. Thank you for
Chair
Unverified
15:51
bringing the bill. Thank you. Representative Viviano, you
Representative Mark Biviano
Unverified
15:53
recognize for a question. Thank you, Mr. Chairman. And point of clarification, when you have a rebate from a manufacturer,
do you have any latitude to change that amount? For example, if the rebate's $5,000, can you lower it to the consumer to $4,000? We actually
have a form that we have to have the consumer sign that lists the rebates that
Speaker 16
16:13
we gave them, and we have to turn that forward. Keep that form in our new car sales jacket, and from time to time we're audited to make sure that the customer
Representative Mark Biviano
Unverified
16:23
did, in fact, receive his full rebate. Okay,
Speaker 16
16:26
so that's not a typical practice? No. What can happen, and you'll see this in advertising, factory rebates are just as I said, they're factory rebates,
and they're not negotiable from dealership to dealership. You get the same rebate in Little Rock or Smackover or Fayetteville, and they're all going to be the same if they're Ford Motor Company or Ford Motor Credit rebates. Some dealerships, in the way of advertising, choose to put a separate line in, and they may say, Smycova Motors special rebate. That's simply a discount. They may call it a rebate, but it's simply a discount from a selling price. The true factory rebate comes from the factory. There's another source of rebates.
Each dealer, when you order a vehicle, you're assessed an advertising charge, every vehicle you order. In fact, I brought an invoice. The last vehicle I ordered, I was assessed $558 advertising fee. That fee goes into a fund made up of all four dealers in the state of Arkansas. They use those funds to advertise on Razorback football, Razorback basketball. They also, from time to time, have FDAF rebates.
Those rebates are generated not by the dealer himself, but by our advertising fund, as well as the manufacturer. Dealerships can't change the manufacturer's rebate. That's a no-no. Thank you,
Mr. Chairman Representative Meeks, you recognize Thank you, Mr. Chairman Just a clarification,
make sure I understand the process altogether You've got a car for $30,000 Say there's a $5,000 rebate on it
Currently, right now, technically You're going to pay taxes on $30,000 Whatever the negotiated price of the vehicle was and what you're wanting is to take that $5,000 rebate, bring the price down to the car to $25,000, and to pay just the tax on $25,000. So you're not technically paying a tax on the rebate right now. You're just, is that making sense? No. You are paying tax on the
Speaker 16
18:34
rebate. If the selling price of the car is $30,000, and that's what this is all about,
unfortunately the manufacturers and customers are all addicted to rebates, I'm afraid the state of Arkansas is addicted to rebates, the tax on rebates. But here's what technically has happened. When you list for sale and you put it in the paper and you say, after rebates, $25,000. But when you fill the invoice out to the customer, you don't fill it out for $25,000. You start out at $30,000 less $5,000, net price $25,000. So the customer is, in fact, paying sales tax on the rebate, which I contend is a cost reduction.
It's allowed for before the car is ever manufactured by the manufacturer. Right,
but if that $5,000 rebate check, for example, or just mailed to the customer, they're
paying the sales tax on that $30,000 negotiated price. And that's why the appearance is created. They're paying the sales tax on the rebate. I follow your line of thinking, and
Speaker 16
19:44
that's precisely the line of thinking of the Department of Finance Administration.
I choose to admit it. Right, which I'm trying to understand the justification for this, because if you get a rebate, they're giving you money, and I don't understand how if someone's giving you money, they
Speaker 24
20:00
can charge a sales tax on it. And that's precisely
Speaker 12
20:03
what they're doing. Okay. All right. Thank you. Representative Cowley, you recognize.
Chair
Unverified
20:08
Thank you, Mr. Chair. You said something there about a discount rate and then a rebate. Do you pay tax on the discount rate? No.
Speaker 16
20:18
You only pay sales tax only on the rebate itself.
That's considered a dealership discount, even though it's portrayed often as a rebate. It's really a discount by the dealer. At
Speaker 78
20:31
what percent is the rebate tax debt? At the same percent. It depends
Speaker 16
20:36
on what county you're in, but it's 6% plus whatever your county and state tax or city tax is, wherever you reside. One other question.
Representative Barris
Unverified
20:48
You pay tax on parts and labor in your shop, right?
Chair
Unverified
20:52
We do. All right. Thank you. Representative Garner, you recognize. Thank you, Mr. Chairman.
Representative Ed Garner
Unverified
21:01
I just want you to know that this is going to be a difficult question coming from me, but why are we coming to government to say you need to change your tax policy to accommodate rebates when if the manufacturer wants to be competitive in the marketplace, they should just simply lower their price?
Speaker 16
21:23
I agree 1,000%. Well, I mean. But it's a marketing strategy that I have no control over, and neither do you. It's a strategy that was adopted by Ford, General Motors, and Chrysler. And each state handles it differently. Our sister states choose not to charge rebates, tax on rebates. We choose to charge tax
Representative Ed Garner
Unverified
21:46
on rebates. I agree. That's the bottom line. I agree that, you know, it's created differences in how states deal with this.
But I can almost argue that I don't know which manufacturer you represent, and you may represent more than one. But if one manufacturer seeks to have a competitive advantage and one truck costs $40,000 and another truck costs $10,000, those ads are going to show the same way. You've got competition. We don't have this debate. because you know what tell me if I'm wrong in every circumstance of every product out there
computers televisions everything where a rebate is offered uh the sales price I mean we tax the sales price and if you get a check because you bought a big flat screen or a computer or whatever you're paying sales tax on that original sales price and we're talking about saying to automobile dealers that your product will be treated differently than computers, televisions, et cetera. Am I right on that? Maybe D.F. and A. I
Speaker 16
22:55
think that, first, I don't agree that all rebates are treated equally.
There's as many different rebates and different policies by manufacturers as there are manufacturers. Okay. I mean, you're educating me. The big three automakers, you're correct, and I hate rebates. We have to run a computer printout before we can sell a car now with a serial number on it to make sure we're getting a rebate right. And rebate is not only bad for the consumer. The consumer wants it, but it's bad for the consumer. But it's also bad for the dealer. You know, the dealer pays for the car, and then we play the money game,
and we wait a few weeks before we get our money back from the manufacturer. And sell 10 cars with rebates of $5,000 or $6,000, and you've tied up $50,000 to $100,000. So it's not a good thing. I don't like rebates. And if I had my brothers, I agree with you 1,000%, we wouldn't have rebates. But unfortunately, I don't have the power to change that. I think that the automobile industry is
a completely different industry. You're talking about low-ticket items in a lot of cases versus high-ticket items.
Speaker 16
24:06
When you tax a $50 item and you tax it 6%, you're talking about $3. When you tax a $50,000 item and you tax 6%, it's a completely different deal. And it keeps people from making a decision to buy new or keeps them from buying it all. And I think that that's the consideration. We can survive while we're going. I mean, that's not a big deal. But our sister states have seen reason to change it.
And the question is, what do
Representative Ed Garner
Unverified
24:39
we want to do? And to follow up on that, you said Louisiana, Texas, Oklahoma, and Missouri do not charge tax on rebates, but there were two, I
Speaker 13
24:49
believe, two states that still do. Let me be careful and give you the exact states. Tennessee charges sales tax. Mississippi charges
Speaker 16
24:57
sales tax. Louisiana does not charge sales tax. Oklahoma does not charge sales tax. Texas does not charge sales tax. And Missouri does not charge sales tax.
Representative Garry L. Smith
Unverified
25:08
That's why you can see people with vehicles that's got McLarty Ford in Texarkana, Texas, or whatever, instead of, you know, here in Arkansas. What the rebate, and I'm not trying to put words in anyone's mouth, but the rebate from the factory is an encouraging factor for American citizenry to buy American-made vehicles. And they do that because they're trying to encourage people to purchase a new car. It's very expensive. I remember those days when you could buy a new truck for $1,500, but it's never going to be again.
And so we in Arkansas have seen that as a chance to get a tax that, you know, in years gone by, that was pretty much acceptable, as Mr. Langley explained, when the rebates were smaller. Now that's causing people not to buy a new car. So it's not just Langley Motors. I mean, it's back over Motors where Mr. Langley's owner that would lose employees, but it's Ford Motor and General Motors and others, and they're trying to encourage job creation and job retention, and it's a competition. And, you know, it's all about business. It's all about creating jobs.
It's all about doing the right thing in America, and I know it's a tough time for us in Arkansas. And Representative Burris asked a good question a while ago, where am I going to get the money? And I've got some ideas. But I think we need to talk about this kind of stuff because people back home elect us to come up here and fight for them. They don't get to come up here. Mr. Langley made a special effort today in the rain, and he was going to come last week, and we had to short the session last week because of other things, and I called him and I said, we're going to be next Tuesday. Can you make that? And he's been very accommodating.
But most of the people in my area of the state, just like in your area, can't come up here and can't visit with us about this, but they're concerned about it. And I think we need to argue the pluses and the minuses, and I think we need to come somewhere in the middle of the road and sit down and say, folks, in Arkansas, this is a good bill. It's something we need to do. Do we need to cut back on something else? You know, I think we've got a little fat in Arkansas government, and our budget's got a few things we could trim back. And this is some of those things I think that I can make the balances come out where it's a good thing.
I want Ford, and I want General Motors, and I want Chrysler to stay in business. Those people create jobs, and it's a large economy. It's not just in Arkansas, but it's the whole nation. We've got to do our part. And, yeah, we're in Arkansas, but we're still part of the 50, and I want us to do our share. And I appreciate your
Speaker 94
27:32
questions. I think those are good things. Thank you, sir. Thank you. And
Representative Ed Garner
Unverified
27:36
I wasn't posing the questions to be argumentative. No, I know you weren't. But it just seems to me that if the big automakers want to be competitive, they should simply price their vehicles competitive.
And this rebate has become a gimmick that now it's being reflected in discrepancies in tax code across states. And it's kind of anti the direction that I hope that we go with tax policy and competitiveness in the country where rates for taxation are broadly based and low and few exemptions, special exemptions. So that's, you know, as we accommodate that kind of, for lack of a better word, gimmick out there,
we put into tax code discrepancies for one manufacturer or one type of good or product versus another that continue to complicate the tax code. But having said all that, I certainly empathize or sympathize with the difficulty in us having tax on this rebate in Arkansas with the majority of our sister states not. But thank you, and thank you for testifying. I would love to hear from DF&A if they have some idea
how many sales we are losing, let's say, in Texarkana to Texas and in Smackover, which is near El Dorado. How many sales are we actually losing to Louisiana because of this? And, Mr. Chairman, thank you for your time, and thank you guys for your testimony. And to add to that, Mr. Garner, the thing is that when
Representative Garry L. Smith
Unverified
29:11
you get an email from a dealership in Texas and they're offering you a new Ford truck at quite a bit less money than what you could buy it in Arkansas,
I'm a loyal customer, and I stay in Arkansas because I want service here. But to those people that don't keep a vehicle as long as I do, I've got a 99 Ford out there with 194,000 miles on it, and I want it to be serviced by local people. But I could rarely go down to Texas and drive to Dallas and buy one if I wasn't going to keep it very long, and there I'd lose an opportunity to support the tax system in my state. This is why in today's technology, and advertisements fly all through the e-mails as you see them too.
It's hard for people to say, Well, I'm not going to buy from James Langley anymore. I'm going to go down to Bastrop, and I'm going to buy my car down there. And I can beat him, and they'll do that. And it's not fair. And I know I'm going to get discussion from the F&A, but that's okay. We like debate. That's
Speaker 98
30:10
good for us. Thank you. All right, thank you. We do have a few
Chair
Unverified
30:14
more questions lined up. Representative Kerr heads you down next. You're recognized for
Representative Allen Kerr
Unverified
30:17
a question. Thank you, Mr. Chairman. Mr. Langley, what kind of dealership did you say you had as a GM, Ford? Ford.
Ford, okay. I could be completely wrong about this, but do Toyota and Honda
do as many manufacturing rebates? Yes, they do. From
time to time, yes, they do. I just don't see them as often, I guess, or I don't get advantage of them. What about when the car dealerships run ads for sales tax paid? How does that fall into the mix? I mean, when you offer, or you may never have done it at your dealership,
but I know some of them have where they offer sales
tax paid. Any time a dealership offers sales tax paid, they're adding the cost of sales tax to the unit.
Speaker 16
31:05
I mean, there's no Santa Claus. Right. They've got to recover their cost until they go out of business. Right. So they're adding that cost to the sales tax, too. So they're paying tax on top of tax. Actually, well, I mean, you really don't, but they pay the sales tax, but you just don't put as much in the trade in, or, you know, there's all sorts
Speaker 99
31:23
of ways to protect yourself. Well, I had a suspicion. i had a suspicion thank you mr chairman
Chair
Unverified
31:28
uh-oh i hope this is uh if we stay on time
on the bill here all right representative westerman you're recognized
representative smith i've just got uh i think i need some clarification so
i can understand this totally but all right say you have a dealership in texarkana and texarkana arkansas then in Texarkana, Texas, you don't have to pay self-tax on a rebate, but if you go from Arkansas to Texas to buy the vehicle and you register the vehicle in Arkansas, don't you still have to pay the tax
on the rebate? Yes, yes. So how does that put Arkansas dealerships at a disadvantage to what I'm seeing
happen and I think I'm seeing folks who in the past my leadership is unusual I've been there 37 years I deal with the grandchildren of people that I used to sell their grandfathers and their fathers and we have several businesses in Union County along
the Louisiana Arkansas line that have actually operations in Louisiana and especially in the oil field. They have oil wells in Louisiana, and they have oil wells in Arkansas, and they have service companies in both states. In the past, I've noticed, and I found this when I was preparing for this, in the past, I found they've wrestled their trucks to the little office in Smackover, Arkansas, or to an El Dorado address, or to a Magnolia address. But when I went back this year and looked, I found 12 cases that I can document,
where the restorations went to Louisiana. And one of them was a good enough friend, and when I called to check on his truck, he hadn't had the truck on, I said, I noticed you registered it in Louisiana, and it's actually Spring Hill. And I said, you know, we dealers like for you to register them in our home district, our home area. Why did you do that? He said, man, I saved $500 on sales tax. I don't know how many times
Speaker 16
33:35
that's happening across the state. If you buy a vehicle in Texas, kind of Texas, and you bring it back to an Arkansas address, you're going to pay the Arkansas taxes.
But if you buy a vehicle in Texas, kind of Texas, and you carry it to a Texas address, you're not going to pay sales tax on the rebate. How many times has that happened? It happened 12 times. That spike over out of 169 sales. I don't know if that's standard. We're a unique little dealership. We're in the oil field, and we've got a unique market. Most of our sales are heavy trucks and pickup trucks and things that are used in the heavy industry. I can't tell you if it happened at Fayetteville or does it happen at West Memphis.
Does it happen at Fort Smith? I don't know. You'd have to go to each place and look. And how many times it happens, I just can't document that. But it did happen 12 times at Smackover, Arkansas. By
the same standard, if you live in Texas and come to Arkansas and register the vehicle in Texas, you're still not having to pay. You don't pay sales tax. And
Representative Garry L. Smith
Unverified
34:37
if the dealership is offering you that same unit and you can go down the line and look at it on the Internet and have the same options and that vehicle is $3,000 cheaper in Texas, people are going to go over there and buy it
even if they come back here and pay the sales tax because they made a difference there. And it's competition. It's unfair competition. And it's something that when I talked to Mr. Langley about it, what, two years ago, I guess, we talked we said we need to do something about that it ran in 09 session but it didn't get out and but we've got we've got to look at these things and we and I think it's a good consumer bill it's good for businesses thank you thank
Representative Davy Carter
Unverified
35:13
you for the question we do have a couple of more I'm glad we only have one bill on the agenda today but it's good good discussion and I you
Chair
Unverified
35:20
know I don't know if anybody's here from you know the public to speak for against the bill I mean and before I'm going to recognize Representative Bell for a question. I mean, I think if we lined up 1,000 people in Arkansas and they bought a vehicle for $40,000 and got a $10,000 rebate, when they walked out of the dealership, they paid $30,000 for the vehicle. So beyond all of this back and forth that we're doing, you know, to me that they gave $30,000 for the vehicle
and however we classify it and what we're doing, I don't know, but I don't know if anybody's here to talk about that. But Representative Bell, you recognize.
Representative Nate Bell
Unverified
36:04
Thank you, Mr. Chairman. Kind of to go along with what you just said, it kind of appears to me that we're taxing a word. We're taxing the difference between discount and rebate. But my question for you, Mr. Langley, is the 12 sales that you mentioned that potentially went to Louisiana. Do you have any idea what the total value of those sales were?
Speaker 16
36:23
I can tell you this our average rebate I can tell you, hold
Representative Nate Bell
Unverified
36:31
on what I'm looking specifically for is what total sales tax revenue did we lose by trying to tax this rebate
Speaker 63
36:40
I didn't figure it that way but I think as a rule of
Speaker 16
36:44
thumb you can take based on what we sell $25,000 is a
cost because we sell mostly heavy So you can take 12 times 25, and that's $300,000 round figure.
Representative Nate Bell
Unverified
36:56
So essentially what you're telling us is that the state of Arkansas lost tax revenue on $300,000 attempting to collect tax on rebates that maybe amounted to $30,000? You can't make that statement. I would
Speaker 16
37:07
like to, but you can't make that statement because if there were trade-ins involved, you'd be trading on the trade difference. You'd have to go invoice by invoice to come out with a figure. But I think you're safe to say $200,000. So there is a
Representative Nate Bell
Unverified
37:22
substantial impact there without question. There would be an impact.
One additional thing that I'd just like to maybe make a statement as much as a question is I operate a multi-state business. And I have locations in Louisiana and Texas. And now personally, I'm very strong about keeping my business in Arkansas. And I have never registered a vehicle in either one of those locations. But I'd like to make the point that it's very – and I don't operate a large fleet. But for people that purchase, like oil companies, et cetera, that purchase large quantities of vehicles, we're simply giving them an inducement, like you mentioned,
with a simple paperwork move to move those vehicles outside of Arkansas. And I think it's a very bad policy for us to do that. That's all
Speaker 120
38:07
I have to say. Thank you. Thank you for that comment. Representative Love,
you're recognized. Thank you, Mr. Chairman. Mr. Langley, I need some
clarification. Are you telling me if I'm from Little Rock and I purchase a car in Louisiana, when I register my car, I don't pay sales tax in Arkansas, I pay sales tax in Louisiana?
Speaker 62
38:30
No. No, you can purchase your car anywhere you want to.
Where you register the car, you'll be taxed at that basis. If you register it on Markham Street in Little Rock, well, it'll come back to whatever the rate is for Markham Street in Little Rock. Okay, so are
you saying that I can register it in Louisiana and not pay
any tax? You can register it in Louisiana if you have a valid address. If you have, if you, maybe your father lives in Louisiana or you've got a lake house at Homer or whatever.
Speaker 16
39:01
If you've got a legal residence in Louisiana, you can register it in either state, but you'll
pay the Louisiana rate, not the Arkansas rate. So are you saying that if I don't have a legal address in
those states, then I have to register in Arkansas? That is correct. So can you explain to me how we're losing sales tax revenue if that person, I mean, I don't know how many people register a car where they don't live if they purchase a car, like say per se.
Well, I think, and I tried to clarify this on the front end,
if you've got operations in both Louisiana and Arkansas or Texas and Arkansas, then you can register it at either place. In the past, they've registered them in Arkansas where the truck was being used, but I'm seeing a trend to get away from the sales tax to go to Texas or Louisiana. And, you know, I don't sell a great deal of volume of cars, so my trend might just be a flash in the pan. You'd have to talk to the dealers at McLarty or the dealers at Fort Smith or the dealers at Fayetteville to have a better picture of this,
but that is happening in my
Chair
Unverified
40:13
dealership. Thank you, sir. There are some questions that I think are going to be asked to DF&A, so at some point here, let's think about migrating
that direction, okay? Representative Viviano, you
Representative Mark Biviano
Unverified
40:28
recognize. Thank you, Mr. Chairman. A statement was made that perhaps the purchase of cars in the state of Texas is cheaper than Arkansas.
That doesn't have anything to do with the sales tax on rebates, does
it? No. I would think that the only advantage would be when you look at the total cost of the vehicle, you've got to include the restoration and the license and the total cost of the vehicle if you're the purchaser. And so the only difference would be if you're restricted in Texas or you're restricted in Louisiana, you're going to save $500 on the restoration
Representative Mark Biviano
Unverified
41:05
if the rebate's that high. That's what I thought. So it's just all based on competitive stuff of the dealerships
and their willingness to either discount the car and apply extra money besides the rebate, correct? I'm sorry, restate that. I couldn't hear you. It's just dependent on how competitive the dealer wants to be. If they want to discount
the car more in Texas and therefore have less profitability in it, then they're
Speaker 68
41:31
allowed to do that. Well, they are allowed to do that. In fact, manufacturers, and this
is unknown to most, manufacturers have special prices for different states. And in some cases, they have a Texas, Oklahoma, Louisiana package.
It all comes into play. And at the end of the day, the only thing we can do here and what we're discussing here is the rebate in Arkansas, the taxes on the rebate in Arkansas.
Representative Mark Biviano
Unverified
41:54
One other question, Mr. Chairman. In your example with the 12 trucks, those were sold at your dealership, correct? 12 trucks, that is correct. So you had no financial impact because they registered them in Louisiana? No, I don't but the state of
Arkansas does. Thank you. Thank you, Mr. Chairman.
Speaker 98
42:15
I have a question for the FNAs. I don't know, Mr. Leathers
Chair
Unverified
42:30
that's fine. Well, I'll tell you, Tim, if we'll switch seats for a minute where everybody can see you. to me the real question here is that the consumer appears to be paying taxes on an amount that's
not necessarily what they purchased the vehicle for or at least the common sense definition of what the purchase price of the vehicle does the department have a position on how that is determined.
Speaker 132
43:05
Mr. Chairman, I'm Tim Leathers from DFA. I'm John Tice with me. The way that the tax operates is defined in the law and it applies to cars as well as other property as you guys have already picked up on and that is that a manufacturer's rebate is money paid for the price of that car
from the dealer, and our tax is levied on gross receipts. I'm going to paraphrase what that is, but it's a total consideration for the sale and money or otherwise from whatever source is the levy of the tax. So this is consistent with what we've done for a loaf of bread. And I grew up working in grocery stores, worked my way through school, and somebody would come in for, you know, back then when cars were so cheap, a loaf of bread was a quarter. You know, you come in and you pay 20 cents and have a nickel coupon,
but you pay tax on that full quarter for that loaf of bread back there. And it's that way with cameras and all that. It's consistent across the board. And, you know, I understand. I bought cars myself and got rebates, and I'd like to not have to pay the tax on that rebate. And I can understand where the customer out there doesn't understand how that works. But if you look at that paperwork, and by the way, Mr. Langley did an excellent job of explaining how all of this works. I'm going to clarify a few things.
He evidently does a good job on keeping up and the procedures for this. But when you come in there for that car, as he pointed out, you get the trade difference, which was added to the law several years ago. You don't pay the tax on that. You don't pay the tax on the discount given by the dealer if he discounts it, but the rebate is paid by the manufacturer, and that becomes part of the gross proceeds.
So it's just a matter of if you want to exempt it, and our position on this is that we said that there's considerable cost, and you've seen that revenue impact. A full year is $13.75 million for a full year's worth. And you guys have picked up on that, and that we've not budgeted for that in the budget presented by the governor. I also want to clarify a few things. I think the questions got a little bit confusing, or the answers got a little bit confusing back and forth.
But it matters not where you buy a car. If you're a resident of this state, you pay the same tax regardless of where you buy a car. So there's no incentive or disincentive as to where you buy a car. And as Mr. Langley pointed out, there might be someone that when they're figuring out their payment and financing and all the stuff, wink, wink, you're getting your sales tax paid, they may decide I can't afford that extra amount for the tax on the rebate.
and they might not want to buy the car for some reason. So it might impact his business to some degree, but in terms of overall business and the sales tax
Speaker 135
46:19
out there, it's consistent with what we do, and it's a matter of money.
Speaker 132
46:25
Another thing that we would like to clarify is that you need to look at the total
Speaker 135
46:33
paid for licensing and registration in those other states, because in a lot of those states, the registration fees are absorbing
it compared to Arkansas, along with the property tax built-in registration, which is much higher. And I have friends that live in Texas, and they love to be able to register their cards. And their rate is $6.25. I think they'd love to give it up to $500 if it was that high on a rebate, I haven't gotten 10,000 on a rebate from cars that I've bought or that I haven't seen, but typically they're left from there. But you have to consider that total package. We're going to look and see and get it to the committee
later on, as if you did go to Louisiana, how much the registration and total fee would be
Speaker 138
47:28
Mr. Garner, recognize. Thank you, Mr. Simmons. Mr. Leathers, in the scenario that we went over,
Speaker 140
47:34
the trade-in that is essentially, I guess,
Speaker 141
47:37
the purchaser of the new car, trade the vehicle
Speaker 138
47:41
in, and in effect wholesale to the dealer, because that is deducted, there's not sale tax on that purchase now,
given a full credit, there's no tax on it. Do you know the policy is the state to surround us in doing this trade-in? We can get that for you. I
Speaker 143
47:59
think most states will allow the trade-in distance on cars. Those of you that are old enough on the committee will remember at one time, we did not tax these cars at all,
Speaker 132
48:13
but we did not allow trade-in deduction. So as a way to raise money, there was more tax net by taxing the people that bought used cars
and giving the trade-in deduction across the board, which many of the new car dealers were wanting. So they got that offset, so there was that trade-off. So now we tax the used cars and we don't tax the trade-in. That was done in the 1980s at some point. Otherwise, that would be part of
Speaker 135
48:44
the total go-to-season go-to-season would be taxable if you
Speaker 134
48:48
kind of figure that out Thank you Anybody from
Speaker 146
48:59
I understand correctly I was just working some figures out here fairly non-complicated Mr. Lonely sold 10 trucks for $40,000 That's $400,000 in total sales. The sales tax on that total sales at 6% is $24,000. Am I correct so far? That
Speaker 149
49:21
would be correct, plus any local tax. Correct.
Speaker 146
49:25
We're just working on the state. If each of those trucks have a $5,000 rebate, and the 10 trucks may have $50,000 in taxable rebate, So, again, it's a 6% rate, we're talking about $3,000 in taxation on the rebate. Am I correct that? I think that's correct. What it appears to me, again, back to the vehicle registration side, is assuming, and again, we don't know, we don't have the information from you all yet whether we do any taxation
but it appears to me that we are leaving about $21,000 on the net exchanges in fair-fax revenue. Yes, sir, we might, and we might not be based on
Speaker 135
50:09
that limited example, but, you know, you have to keep in mind, the majority of people that are buying vehicles, have to make sure they're driving, if they get stopped, and they don't have a problem, you have to look through your car, that's where you live, so, it would be an isolated case, and as he pointed out, he sells a small number of vehicles, and he's selling bigger trucks with rebates,
I was thinking of these very isolated instances where you can do this. We do have a special tax-based wage for interstate truckers, and they get a lower tax rate.
They're taxed at $600 on their big
Speaker 142
51:19
get a tax at $600 for big trucks that are going up and down the wage. I pretty much appreciate the information. I appreciate the information. I
Speaker 135
51:48
know in my business, Thank you.
and there's maybe a minor amount of this going on but it has to be in a situation because you do have some location out of state and then it's going to have to be in a situation where the other
property taxes and fairs have much registration and higher fairs have the rate going out already that extension. So we think it would be very meaningful. We will get
Speaker 152
52:45
you in a minute. Mr. Kelly, you're right there. It's very good. But in the out-of-state tax, if I buy a vehicle, I pay a little small percentage. If you
Speaker 135
52:57
do, they may have some special transactions to your attention that I'm not aware of,
but I think all the states that surround us now have selected registrations as far as their sales time. They don't select it at Tennessee. Tennessee was at one time, but I think they did.
Speaker 152
53:14
I think we get registrations. We don't turn any money back
Speaker 135
53:18
now. If you're talking about a truck, you're talking about a big truck, and then you say commerce, we're forcing fees and all that. We don't need to be thinking about big trucks, but we don't turn any money back on regular vehicles.
Speaker 152
53:35
I was thinking of it as a small business. I think it's about some protection. They told you, and I was thinking, and then it was, it raised straight. We have had some legislation back and
Speaker 153
53:56
forth over that, but it is now taxable. I don't know the history
Speaker 135
54:01
of that, because it was a dense and a lot of taxing.
Speaker 140
54:08
I can recognize this. Mr. Callaghan, the current law extended warranties
Speaker 149
54:13
are taxable. As Tim said, that has gone back and forth over the
Speaker 153
54:18
years. The, ultimately, the carding was originally extended warnings were not taxable. The carding was, the new carding was coming in asking that extended warnings be taxable. It was easier to collect the tax on extended warnings, then to collect tax on all the stuff. There was litigation that overturned that tax back about 10, 12 years ago.
The Supreme Court set aside the Arkansas tax on extended warnings. the general assembly came back in the following session and we imposed that past suggestion and how people filed it in the law. I think it's going to be real interesting there if you go back to state to state to tell us what they charge
Speaker 152
55:03
and have to do something like that where we stay around this knowledge of what they charge and understand a whole lot of life in the past that we didn't do that
in the past that they charge and the past is still Mr. Chairman, Vice
Speaker 157
55:22
Chairman, we'll put that together for you. We'll get the surrounding states and we'll try and do it for some different price of vehicles and show you what the price differences would be. Thanks,
Chair
Unverified
55:35
gentlemen. Is there anybody from the audience that would like to speak for or against this bill? Okay, Representative Smith, would you like to make some closing comments for your bill?
Representative Garry L. Smith
Unverified
55:48
Thank you, Mr. Chairman. Thank you, Committee, for listening, and thank you for the debate we've had on both sides, and I hope you'll consider this as we wind the session down. I think it's a good bill for the consumer. I know it's a good bill for businesses, and I think we need to keep the businesses that we have if it's within our means to do so, and of course, we still have to operate under a balanced budget requirement, and I understand that as well. So again, thank you for the opportunity to bring this discussion. I appreciate Mr. Langley coming today and presenting his side of it, because he's the
one that had been visiting with me about it, so we need to look into this. And I think we are doing that, and I appreciate all the questions and comments
Speaker 65
56:29
on both sides. Thank you very much. MR. Good discussion. Mr. Langley, thank you for coming. What
Representative Nate Bell
Unverified
56:35
purpose, Mr. Bell? MR. Just a question for DF&A regarding the reports they're going to be bringing us. If it would be possible, I'd like to see that information separated by commercial registrations versus personal registrations. Maybe
Representative Davy Carter
Unverified
56:47
if you can just get with them, you know, here afterwards.
Agenda
Documents
No documents posted.
Speakers
Speaker 2
Chair
Unverified
Representative Garry L. Smith
Unverified
Speaker 13
Speaker 16
Speaker 25
Representative Barris
Unverified
Representative John Burris
Unverified
Representative Davy Carter
Unverified
Representative Allen Kerr
Unverified
Speaker 53
Speaker 24
Speaker 36
Speaker 57
Speaker 58
Representative Mark Biviano
Unverified
Representative Bruce Westerman Chair
Unverified
Representative Stephen Meeks Chair
Unverified
Speaker 12
Speaker 78
Representative Ed Garner
Unverified
Speaker 94
Speaker 98
Speaker 99
Representative Nate Bell
Unverified
Speaker 63
Speaker 120
Representative Fredrick J. Love Chair
Unverified
Speaker 62
Speaker 68
Speaker 127
Speaker 132
Speaker 135
Speaker 136
Speaker 138
Speaker 140
Speaker 141
Speaker 143
Speaker 134
Speaker 146
Speaker 149
Speaker 142
Speaker 152
Speaker 153
Speaker 157
Speaker 65