Revenue & Taxation- House

Order we're gonna move house bill twelve forty two at the end of the agenda so that representative Lundstrum would have time to get back from another committee. And if you will start with house bill thirteen seventy nine. Representative Michael and then you're recognized. Good morning come morning. Okay I'm a representative Michael Linden and I am with Paul Goehring sister revenue commissioner for DFA. All right thank you chairman and members to add today I present you with house bill thirteen seventy nine IDFA brought us this bill to present it requires businesses with an average monthly sales or use tax liability of five thousand dollars or more per month to file electronically and It does not cause any financial impact on the state of Arkansas about three percent of people who have a sales or use tax liability will be affected by it and we do have Arkansas Code twenty six eighteen thirty one promotes the benefits and encourages the use of electronic filing so this would be in compliance with that. Happy to answer any questions on it. Well you want to add anything to that at this time certainly Mister chair and thank you representive Mike Linden for sponsoring our our proposed bill just to give you little information we have about ninety five thousand sales tax accounts in Arkansas and that report sales or use tax we have about three fourths of those currently are filing utilizing the electronic filing system that DFA administers its called a tap or the act Arkansas taxpayer access point we have about twenty four twenty five thousand paper filers that are currently sending in paper reports ninety sales tax to process we're trying to move this state in more of a direction of the having more electronic filers of that twenty four twenty five thousand it would be that eight hundred and sixty five additional counts that will be required to E. file so as representative point out that three and a half percent of our current paper filers would be affected the bill does have the ability for DFA to waive the electronic filing requirement if there is a taxpayer that does not have access to technology does not have access to broadband any any reason that there is a need for a waiver of electronic filing requirement it is provided within this bill I'm happy to answer any questions all right thank you it's a couple of questions remember first unless you're representative Cavenaugh. Thank you Mr chair thank you what how did you come up with the five thousand dollars what my dog aside five thousand dollars was the magic number thank you so we have we looked at our surrounding states and and so what we did see was that Mississippi they require electronic filing if the taxpayer pays twenty thousand dollars a year in tax so we would be more. allowing people to a taxpayer to continue to filing paper R. as a five thousand year would be around the sixty thousand dollar range Tennessee requires like twenty filing if you average five hundred dollars a month so Texas is actually a little higher than what people we proposed a around a hundred thousand a year in tax so we just wanted to be at least kind of in the middle of what our surrounding states proposed all required sorry okay and we're saying that eight hundred sixty five accounts is what we think will actually hit this that that's correct eight sixty five all right thank you thank you. Thank you senator members any other questions. Ninety nine the is no one signed up to speak for against anyone the audience like to speak for or against this bill. seeing none represented Macomb and then would you like to close for your bill thank you I am because five bill and ask for a good vote. All right members you for discussion of the bill where the will of committee. The motion do pass any discussion on the motion. All right saying none all in favor signify by saying aye. Oppose ayes have it congratulations you pass your bill. Next on the agenda we have House Bill fourteen thirty five. Representative stiff you introduce yourself for the record. Thank you Mr chair representive RJ hawk District eighty one is this your first time in five Revenue and Tax this is my first time for Revenue and Tax I appreciate you take it easy on me but I hope it works out for you thank you Sir that committee member Sam Raimi house bill fourteen thirty five to amend the pre payment calculation for sales tax from the preceding calendar years the preceding fiscal year this bill amends the period of time used to calculate the sales tax prepayment requirements for businesses this bill would allow the taxpayer to determine in July if they would be required to make prepayments beginning next January businesses that collect sales tax and have average sales of two hundred thousand dollars per month a report required currently to make prepayments of sales tax based on the average sales of the preceding year this is a technical point up without changing the practical efforts of the sales tax pre payment system using the preceding fiscal year aligns with state budgeting and provide sufficient time to make accurate pre prepayment calculations and with that I will take any corner Mr Paul take any questions representative Cavenaugh you're recognized. Thank you Mr chair and with full disclosure nothing about representative hot but I hate this law. just to be quite honest with you I think it's one of the most unfair laws on businesses that there is. And this is really geared more toward DFA so instead of doing a calendar year two hundred thousand we're going to have it based upon your physical year rather than a twelve calendar year correct that that's correct the the way that the average account upon hearing with the FAA so currently what we have in the law is it's based on your preceding calendar year so if you have a report that is and now you're gonna be subject to this prepayment requirement that because you're now your net your sales have grown in your over that two hundred thousand amount on average currently we have to make some last very last minute adjustments in that calendar year for your December report that's going to be require pre payment in the month of December and then of the final payment in January what this does this proposed bill would actually you would base your two hundred thousand dollars in sales on the prior July through June period and then that business would know in July of for example two thousand twenty three if they're going to be subject to that prepayment requirement beginning January one of two thousand twenty four the goal of this is to give businesses much more time to plan cash flow and if they're going to be subject to the prepayment requirement for their next calendar year well I'm I'm glad you brought up cash flow because as a business person your use of my money and I get no use of that money I have to pay you the money before I collect the tax so if I'm having to pre pay a tax to the state on something that I have not collected at all how is that fair to a business well and I certainly does this bill was that this law was actually acted in nineteen eighty seven and so um I couldn't speak to the General Assembly level of all the reasons that they may have had to enact this originally back during that session nineteen. Eighty seven but I believe the idea was is that for those larger businesses and I know that two hundred thousand dollars to a thousand average for sale is in a is a tremendously large business but those businesses that are collecting the tax the sales tax from their customers to to remit to the state to avoid that. Period of time that is just sitting in in the the taxpayer's account waiting to be remitted to speed up the process so that it can go to the state so that the state can distribute those revenues for to provide essential state services but what the businesses are doing that are pre paying is there actually taken their cash pre pay and in the future for a sales tax that they not collected so it's not that they're taking customers money it they haven't even collected the customer's money they're using their cash. To pre pay something that they're going to collect from somebody and I guess that's where my heart burn it is with the whole law in itself is that we're asking businesses to take their cash pre pay a sales tax but not even collected is not like they're holding the sales tax in a trust account to pay it it's their cash that they're playing it with then they get the credit because it that's how it works but as an individual I thank this is probably one of the most unfair things that we do to businesses because we don't allow them to use their money for what they see purpose we give it to the state early for a sales tax at the not even collected. And I'm that's just my opinion. I have a question would you be okay if we did away with this law that would I couldn't answer that question that would be a matter for that would have to consult with the governor's staff but just to speak to your point there there are two options under the prepayment law so to your point about one of the options is that the business can wait until the twenty fourth of the current month where they have been making collections of tax to send in eighty percent of their or more of their liability and then that remit the remaining twenty percent when they file their actual report so that that option does provide that the business the ability to actually collect taxes through the twenty fourth of the current month and then send in eighty percent of their estimated what what they believe their liability to be and then sending the remaining twenty percent in the following month. One more follow up Mr so if. If a business if if we were to do away with a law like this would there be any impact to the state budget because you're still collecting your sales tax. Do they revenue shift from one fiscal year to another fiscal year okay thank you yes ma'am thank you president represented brown you're recognized. Thank you Mr chair I get involved in this prepayment staff a few years ago when I was looking at some legislation so. When you say that is going to be based on the previous fiscal year. Are we still paying monthly they're still paying monthly that's correct yes so during the previous fiscal year so for the month of June I'm going to pay my estimated sales tax based on what my sales were last June correct on what your average sales were for the year or for the year that that's right yes you'll have a you'll have a a schedule that you can utilize the D. if they can provide to that business to show what their previous fiscal year average sales were to show what they're they're pre payment amounts would be for the next calendar year so it's just to take the average sales for the previous fiscal year. Based on average per month that's right yes all right then the other question I have is if. If the companies like in COVID certain businesses did like outstanding business a dip like boomer business so and now things are probably more or less back to normal so are they still needing to pay their estimated sales tax based on this previous year where everything was just sort of app you know different way different than normal the very good point and that certain circumstances happen with our accounts if if the business did have a a very successful year because of the pandemic or some other reason and then there there pre payments would not match what the economic realities of that business is currently we would absolutely speak with that taxpayer to adjust their pre payments so that they are not sending in improvement prepayments more than their actual liability is thank you and then one other question when When a business knows and and and do you have an A. knows that there wasn't no over payment for previous months is there not some way that they can apply it like they've got this bank the money with you all can they not apply that to what their current indebtedness C. R. their current tax due is is there a way to do that are they I think at the time I talked with you all about this was about a ninety day lag before they got their overpayment back. I will so the way that the the law currently works is that a business that is subject to the prepayment requirement they either paid to forty percent installments in the the current month so for example we're in we're in February right now that business that subject to the prepayment they have two options they can either pay forty percent at the background the twelfth of the month another forty percent on the twenty fourth and and how the true it up is out with a father actual report in March and the the the the goal is is that that it's about that twenty percent but if they actually collected more in tax than the prepayment the eighty percent that they paid in the current month they'll pay more on their report or the law or they can possibly pay less depending upon how much their actual sales were and the other option option two is is that you essentially pay eighty percent of what your liability would be in the current month and then you true it up. We've actually file your report in on March the twentieth by either paying twenty percent a little higher or a little bit lower but if there is an overpayment that occurs and then we can certainly refund the overpayment of your pre payments and with the idea that we will adjust your pre payment schedule to fit your actual business the last thing we want to do is is hold taxpayer you know funds that are not owed. Thank you I think that's improvement over what I thought it was thank you thank you ma'am thank you representative ray you're recognized thank you Mr this year and yeah I know you've already stated this but what year again did this state start doing this whole pre payment arrangement nineteen eighty seven eighty seven okay so I guess in and this is my first time on the committee so apologize for questions it may be obvious to others but a lot of times in the context of sales tax the language that we use is collect and remit so you're remitting what you've collected which is not free payment due to the businesses who pre pay do they receive any sort of. Editor benefit in return for providing an interest free loan to the state a so what we do have for tax that tax and sales tax accounts is that they are given a they were able to retain up to either two percent of the amount of the tax collected or up to one thousand dollars I think it's actually opposite you know they're there I think your point might have been that the business is holding on to the states taxes but what we actually provide is is an incentive for the businesses to collect our tax by allowing them to retain two percent of the tax collected up to one thousand dollars. Okay hopefully I I just I public try to answer questions if I fail please do do all the do all the other states do this. In terms of prepayments I I would I would have to check okay. All right thank you Mr thank you senator Beatty your my information is that not not every state has a prepayment but some do. Paul just a quick question you said this law was first enacted in eighty seven can you give us a little history on when that two hundred thousand dollars last time that amount was changed and in this law to my knowledge represent baby that the two hundred thousand has not been changed so it's been two at the two hundred thousand limit since eighty seven that's that's my understanding yes Sir thank you. Thank you representative Beatty representative will. You're recognized. Thank you Mr chairman Mr during on on the. The revenue impact is is none. We'll who's going to handle this one comes in from an accounting standpoint for the study and maintaining the account. That's maintain keeping up with all these placement. You should have a choice of two a month. That's right. And so from what our review the what we were wanting to achieve by this legislation is to give the actual businesses more time to plan for any any changes in their pre payments amounts or also if they are going to now be subject to the prepayment amount because there might be such a business that is is growing a small business that's growing that wasn't subject to the prepayment requirement and then now that they're averaging the the two hundred thousand dollars in sales and. And we didn't want that taxpayer in December of two thousand twenty three today to be caught off guard that they're now subject to the requirement we would much rather that taxpayer know in July two thousand twenty three if they're going to have to start making the pre payments in January or I'm sorry and at the end of the year December January. We do not my question was are you don't have to have any more employees to keep up with the track this income as it comes in no Sir we don't we are not requesting any additional resources in order to make this change will be hoping to make this change to help out the businesses that are that are now going to be subject to the requirement that already exist in the law or those that are currently subject to the prepayment requirement if there any adjustments in their in their amount of sales they just have more time to plan their cash flows. Thank you Mr. Representative arrives you're recognized. Thank you thank you Mr chairman of palm issue this in a situation where you actually play that prepayment. But let's say you sent that out and time goes on through the year. Do you run the risk that there could be a higher bill if you leave that two hundred two hundred all. I mean you know if if you go ahead to play the tax writer anyway. So would you know if you took that that beginning portion off with that not make the existing tax bills are by the most the tax that's that's collected by the business is is still currently owed this is the pre payment laws really a timing law that the General Assembly enacted for certain size businesses based upon the matter sales of when they send in their their payments so if you're if you're not subject to the the prepayment law currently you would you would continue to collect your taxes from your customers in the month of February two thousand twenty three and then you would remit with your report that's due March twentieth of two thousand twenty three follow please. Paul no that is that do every three months or every months typically a sales tax account is paid every month if but if you are a small business you can be on quarterly filing but if you're very very small business we also have the ability to have an annual filing for that for that account but typically sales tax accounts or monthly filers thank you yes thank you Mr chairman thank you senator Reid representative Lynch you're recognized. How many days only average are we shifting the money payment with a pre payment. Versus when it would actually be due if the private placement wires so it's so under the two options the first option that's currently in the law forty percent is due on the twelfth of the current month so when mark sample. A business that's under option one for February they would send in a pre payment of forty percent on February the twelfth there was in another forty percent payment on Feb or the the twenty fourth and their final collections that the true up there actual to be their actual collections would be due on March twentieth you're talking about. Between the first. February twelfth March twenty talk about forty about forty two days okay second payment is about so but the only other option is option two is on the twenty fourth of the current month see a little bit less than a month twenty six days so we're not holding anybody money for a year no Sir yes yes for that period time that's right to R. twenty six everybody that's up by a prepayment filer is there are there monthly filers thank you yes Sir okay representative Mayberry you're recognized. Representative talk thank you very much for bringing this bill to our attention you can see it's created quite a bit of conversation and things that a lot of us didn't know and the first half of a first bill for this committee. It's it's good this is good discussion we we are discovering something and so I guess my request to you is do you think based on the conversation that we just heard right now would you be willing to hold this bill and looking to two things that I think have been discussed either a is I think it was represented a baby that was kind of mentioning the two hundred thousand dollars that was that that was put in place in the nineteen eighties certainly things are different now could we look at inflation what that would be in today's numbers or B. as I think representative Cavenaugh would love is that we just get rid of this completely how that would affect you know at our people being able to our idea today being able to collect the taxes to other states six who other states that don't have this do they have more trouble collecting the taxes can can we just send it to a little bit more study before we pass this along because I think this is really something we need to look at that can help a lot of our businesses it with their cash flow. I mean I would look at different and say well we can always look at it for sure and and see what what that would look like a you know I think it's in the day while work representative Cavenaugh and others in this room of said you know we don't like this this law we've got until we have a bill to get rid of it through a fiscal impact important things of that nature this what we've got so we're trying to essentially help businesses right now by saying you know what rather than in December that you you need to pre pay an income up with the money to to start prepaying that at that point we're giving them more time by doing it in July I think that this bill on hand right now if it were to pass today we are saying you know we're gonna help you small business person that makes two hundred thousand dollars a month we're gonna help you right now figure that plan out but who's to say we don't come back with another bill in it during the session or maybe next session to say know what we don't like this at all it's just do away with this all together right now what we're doing is trying to give business more time to to come up with that prepayment penalty that's all this bill is doing right now. I guess is my request instead of moving this bill all the way through and if we have another bill maybe that's filed afterwards if we could just hold and you know next week at bring it back up and say this is what we discovered and if we can't do anything right now. You know yes this is a step forward but if we could just hold it that way we're only sending one bill all the way through instead of having to have another bill that does away with basically what you just passed. I thought. Hopping on just one second representative Michael and then you're recognized. Thank you so there there has been a lot of good discussion thank you representative hot for bringing this but regardless of the discussion about whether or not this is a good policy I just want to kind of bring it back and say this bill specifically changes nothing other than to say instead of looking at the previous calendar year we're gonna look at the previous fiscal year right so there's no financial impact there no changes that is simply a change in date of what we're looking for this bill is that correct correct thank yes correct. But Paul so most of the discussion has been around from from my view point of whether this whole program should exist in its current form. This bill is a bill that would benefit the taxpayer in giving them more time about six months I thank more time to adjust to whether they're going to start doing or whether they're already doing a bit more time to plan their cash flow that's correct yes Sir and it and and and and representative Cavenaugh I good points. That bill would be if I'm not mistaken and you probably speak to this better than anyone that pretty significant revenue ship if we change I'm not saying you should or shouldn't but can you kind of speak to what that would do. But yes if they're if we change the two hundred thousand dollar threshold to raise it to us to have less taxpayers be subject to the prepayment that would cause a revenue shift from one fiscal year to another the tax would continue to be collected does business is just would not be making prepayments anymore if they were no longer subject to the law so we're are we were formulating this this proposed bill in our discussions what we really were trying to focus upon or those taxpayers that this is going to cause a accounting in a in a compliance issue for them and to try to help them to get six more months more time just plan for the for the for the next reporting year so we would and we would hope that were able to get this change to help the taxpayers out to ease their compliance burden and we certainly aide the other questions about raising the two hundred thousand dollar limit or doing away to it all together we're certainly depart able to provide additional information if we could if we were able to allow this legislation to purchase proceed just to make this one specific change it would be very helpful for for taxpayers so in the event that another bill comes behind this one that eliminates that requirement or changes the threshold. and let's say those bills failed if this bill were to pass it would still give the taxpayer up six month benefit of trying to plan for their cash flow absolutely SO members any other questions. Aren't seeing no other questions representative hawk would you like to close for your bill and I'm sorry it back up to today's anyone in the audience and speak for against this bill. All right signal would you like to close for your bill yes Mr chairman I just wanna say once again This is a bill that we are trying to help current business owners in Arkansas I understand the sentiment by the committee and I appreciate the conversation that was had but this bill is helping it's not hurting a business owner in Arkansas And so with that I would appreciate a good vote. Thank you for discussion on the billboards will of committee. The motion do pass all right any discussion on the motion. Seeing none all those in favor signify by saying aye. Opposed the ayes have it congratulate you passed your bill thank you John. Thank you Committee. Right. Yes. Okay. We're gonna members were gonna run the the to Senate bill one ninety eight and then after that Representative easy under douches self your. Allowed to present your bill representative eaves proud to be presenting a bill in front of great committee. All right members we have a Senate bill one ninety eight from Senator Dismang myself it's an active amend the law regarding county property re appraisals and this bill would basically just take off all counties to a four year reappraisal cycle doing away with the uncertainty in an equity that's great about bouncing back and forth from three and five year cycle like they do now it's going to provide assessor's appraisal companies and taxpayers some uniformity and some stability I think for the most part it's a it's a work flow management issue we want to try to have basically the same number of counties undergoing reappraisal every four years it's going to eliminate confusion on part of the property owners and title companies and have some continuity and certainty to the property owners by Not having them guess which side we're on whether it's three or four or five and that's what the bill does we I think there's someone here that can also add some more to that as well. Members do we have any questions. Representative Cavenaugh. Thank you Mr chair. I just have a question when we're and this is just a general knowledge questions we're doing the re appraisals are there examples when the appraisal goes down. There have been Sir could you could you sale I'm my name's Russell hill the assessor for Washington County and that this is a package bill with the Arkansas sisters Association and the A. A. C. have together to to present this at their. Very rarely there was a time in two thousand eight when the market actually what we call the the the bubble burst and and properties actually went down due to bad loans and and and things of that nature counties can in that situation DO a reappraisal mid year and Washington County was one of those counties that did that and we lowered the property values for for property owners is so that follow Mr so there is a process to where I guess we do have another bubble burst because who knows what's gonna happen that taxpayers can get relief from that overly yeah hi appraisal yes it typically with a reappraisal when that that occurs Amendment seventy nine which is in the constitution. Property values that what we call the taxable value what people actually pay taxes on they only increase for example Washington County last reappraisal baddies one up to fifty percent. from the prior reappraisal cycle on your homestead it only goes up five percent a year. As long as you step maintain that residents and lived there so it's going to take ten years for the average person Washington County to even pay the current property value for twenty twenty and second businesses it's ten percent or other all other properties ten percent a year so homesteads five percent my understanding and commercial property that you have is ten percent but it can raise that per year any property that is not on the home state okay thank you. Representative right. Thank you Mr chairman you know and assess Russell you know if you've got a person over sixty five years old is frozen anyway in that right yes Sir yes Sir you know or disabled hunter percent disabled disable. Russell. Let me ask you this you got some that are five you got some that are three and you got one county set and right next to another county. And all of a sudden this one after three years jumps up pretty good and the other counting then have a whole lot of anything going on for two more years you know that causes a little bit okay conflicts and notice things it creates a lot of confusion especially for title companies who are representing prospective buyers and and and and because the when at what property does sell it goes to the full assessed value and so for them they're playing a guessing game is the reappraisal every three years and every five and once you're in a safe and typically we for the longest time we ran a five year cycle until the the market started going crazy and and but now it has it fluctuated from county to county that creates a like special if you own property in two different counties why is this on a five Weiss is on a three it so it creates a tremendous burden for property owners and investors across the state. Thank you Sir thank you Mister. Are there any other questions. C. nine representing your audience to. All of our audience is there anyone to speak for against the bill. Seeing none representative you ready clothes for your baby yeah I'm I'm close for my bill and I make a motion to pass. We have a motion do pass all those in favor. Any opposed. Congratulations your bills passed committee. Members that takes us to house bill twelve forty representative Lundstrum and and members this bill has a fiscal impact currently a representative luncheon will come talk to you about that so we will be hearing it asking questions but we're not gonna be voting on it quite yet that'll come later. And representive luncheon you're recognized to present a bill when you get seated. Thank you colleagues. I'd also like to introduce the expert on the bill Casper Hooper. You can introduce yourself inspired. Cast for Huber K. S. B. E. R. H. U. B. E. R.. This bill is basically reforming Arkansans trust law to make our state much more competitive financially and when folks are shopping states to house their trust laws represent luncheon again just one second Caster with her you would would you tell the committee who you're with yes Sir I'm with reach more paragraph table Arkansas okay. When folks are shopping for that again we're going to confusion we're hearing you down here could you said who you with one more time yes Sir reached more paragraph in Fayetteville the law firm yes okay thank you sorry about that representative go ahead now I'm I'm good. When folks are shopping for a place to domicile their trust they state shop they look for the best place to park their assets Arkansas is not competitive we're in the bottom one third of states. So we're being beat by Utah Tennessee Alaska South Dakota Tennessee Texas Washington and Wyoming Wyoming and we're not competitive by any state at all this will change that and I'd like for a Casper to explain just exactly what that will do. Thank you for allowing me to step in and speak in support of this bill again my name's Casper's you were and I'm a tax attorney at rates more paragraphs. RMP was started by Joe recently more as a boutique law firm focusing on high net worth the state planning. Our firm has grown over the years an expanded in other practice areas but there's still a large emphasis on tax and estate planning we currently have eleven tax attorneys and collectively we represent many of the wealthiest residents of Arkansas. Trustor used by almost all our state planning clients regardless of net worth the trustor specially favored by high net worth individuals because of the creditor protection and tax planning benefits and opportunities that they offer that and that other estate planning methods do not. And as representative Lundstrum mentioned when we meet with with high net worth individuals about their state plan they want to know which jurisdiction is best to establish their trust to maximize the creditor protection and tax planning benefits and unfortunately as of today that's not Arkansas. Even our even clients who come in who don't really even know what a trusted as they come in asking about Nevada trustor South Dakota trust or Delaware trust they've they've heard from their financial advisors and their CPA's or even Google that the state's offer better planning opportunities. And we can't deny that they do but I from wants to change this we want to keep wealth earned by Arkansas residents in the state of Arkansas investments that would create jobs and improvements innovation. I need to tell this committee that Arkansas is a unique state. Home to some of the largest publicly traded companies some of the wealthiest individuals in the United States there's no reason to let states like Delaware and South Dakota Nevada reap the benefits of the wealth that's created here. House bill twelve forty is being introduced in addition to several other bills that are before this committee today but and collectively these bills are aimed at making Arkansas much more competitive with these other states specifically house bill twelve forty six to eliminate the tax the state income tax on non grantor trusts. And explain what that means generally speaking there's two types of trusts for income tax purposes there's grant or trusts and non grantor trusts. Most states most trusts are grant or trust income earned by grant or trust our tax to the grand tour which is the person who creates the trust and puts assets into it your standard revoke herbal estate planning trust that ninety nine percent of our. Line set up is a grant or trust this bill does not affect the taxation of those trusts. Non grantor trusts on the other hand or irrevocable trusts that have specific provisions designed to make that trust a separate taxable entity meaning it follows its own tax returns and can pay its own income tax. But even these kind of trusts when ordinary income is earned by the assets of those trusts and distributed to the beneficiaries that income is carried out and reported on the beneficiaries personal income tax return this bill does not affect the taxation of distributions of income from these trusts so the only thing this bill does is eliminate state income tax on capital gains and undistributed ordinary income generated by assets that are held in a non grant or trust. The FNA is produced a fiscal impact statement showing revenue loss of twelve point one million dollars. Ording to the as may tax revenue for twenty twenty three this loss accounts for less than a quarter of one percent of total tax revenue. Further the definitive statement doesn't take into account any revenue to be generated generated by this bill which we strongly believe it would do. our firm as clients with billions of dollars of assets held in foreign jurisdictions currently and several of them have told us they want this bill passed and and if it were passed that would bring their investments in these foreign states back into the state of Arkansas this type of that investment in Arkansas would create jobs and an additional work for banks financial advisors CPA's attorneys and likely even those working in the real estate industries. As a result our firm strongly believes in our clients that an accurate dynamic scoring of this bill would produce a revenue impact study showing a revenue positive results over time. I'm happy to answer any questions and again thank you for allowing me to speak in support of the bill. Thank you for that representative Cavenaugh you're recognized. Thank you Mr chair thank you all just a few questions I make sure I understand so on this non grant or trust. On regular income you would still have your regular income tax that you would be due on but what it's going to do away with is the capital gains really is what the big thing is going to be on capital gains for its set aside the trust they want we won't have to pay that if you have this so would be capital gains and then also any ordinary income that is accumulated meaning it's not distributed to the beneficiaries is not down down to the beneficiary correct the end. We have we thought about what this might be an implication on the federal tax side for those individuals for the trust have we looked at what implications that might have on the federal tax for these people. Those don't change we're not talking about federal taxes we're just trying to get those folks to come to Arkansas they'll still have to pay their federal taxes. Yeah I think there there may be a company may be an application on federal taxes when we do this is my understanding from trusted journey that I know he said that was the one concern that he had is there may be some implications he thought may be in all in all not wash out with the savings from state but there may be some applications on the federal taxes so I guess we're talking about the wealth brought back into Arkansas by allowing us to be competitive with other states I know a lot of people moving to Texas Tennessee and other places that don't have these taxes on these these trust do we have any idea how much wealth might be created by moving these back just a ballpark figure. What you go first well unfortunately it's really hard to to estimate a I think we're we're trying to have a dynamic scoring of the bill done but you know just speaking from from our firm and and our clients so we've talked to you know like I said I mean we're we know billions of dollars that are currently parked in foreign jurisdictions that would be brought back here that doesn't mean there to be a billion dollar increase in revenue but it would mean that there would be additional work done which would create revenue and and tax revenue. Can you give us examples of additional revenue it might in the how it may benefit the state when we talk about that yeah absolutely so the the fees charged by financial advisors for managing this wealth the fees charged by attorneys and CPA's for falling for creating these trust for filing the income tax returns for those trusts things like that. Okay thank you. Thank you representative representative ray you're recognized. Thank you Mr chairman My my question is along the same lines it representative Cavenaugh was just asking about on the the revenue impact so. DFJ says twelve point one million impact I'm I'm curious if you can talk a little bit more in depth about the increased economic impact the do you think this change would have specifically I'm wondering can you point me toward any any research or are there any studies that have described the increase economic impact that will occur with this change not necessarily even in Arkansas but in in other states surely someone's written on this topic I'd be curious to read more about it Arkansas would be the only state that would have done this so all the other states that are competitive in terms of trust planning don't have an income tax at all. So that when you when trying to research this there were there wasn't much available what I do know is that there's lots of trust companies in the state of Nevada South Dakota so you know if wealth is brought in here someone's going to need to manage it which either the current banks and trust companies could take that on but they would probably also be new trust companies created to manage this which means jobs and further revenue for those companies. So obviously there there are states that don't have an income tax but are there you're you're saying there's no other state that is considered an exemption or that has implemented an exemption of this time correct not that I'm aware of okay thank you. Thank you presented of representative brown you're recognized. Thank you Mr chair I think representative Cavenaugh asked one of my questions just basically if this is a non grantor trust distributes to the beneficiaries the beneficiaries pay ordinary income on that money it is that's correct okay but then if the trust has gains they're currently paying income tax they're paying taxes on whatever they can Patrick retain and realized gains in the trust correct correct. Okay. If we if we pass this legislation and and in other assets are brought to the state of Arkansas those trustor brought here. help me understand. Have I mean I like this bill just help me understand of when that money comes back here. That would be invested in our state it would just be sitting there I believe it would be just invested in stocks or something it would actually be invested so to. Where would the economic growth come from is what I'm trying to figure out. For sure so I I think much of it would be invested in in stocks and and those types of investments but you know most clients also invests in a portfolio of things including real estate and things like that so I would I would anticipate based on my own experience and my own representation of clients and knowing what kind of assets or investments are held in their trust that local investments would also be made in in the real estate here. Thank you if I could follow up one of my chamber members reached out to me and the skin discussing this and he said this is the cherry on the top of the Sunday when we're competing to bring businesses to northwest Arkansas when you're discussing with the business in your have twenty employees and they're discussing coming to northwest Arkansas and you talk about trust law this is a competitive edge for us to say not only do we understand what you need to understand what you need long term. Thank you representative Mayberry you're recognized. A lot of my other questions were you taking care of thank you members but just curious we have not even begun to talk about income tax reductions in our state and that is definitely on the agenda and just wondering how that might automatically help in this situation if you can just give some comments on that. Any time you generate wealth any time we bring wealth in the Arkansas it's going to help Arkansas we've got to quit thinking like a poor state start thinking like a rich state I spent some time last night looking up our our business demographics and in twenty twenty three the business tax climate in Arkansas were rated fortieth. That's not a good rating to be we should be in the top ten percent we have so much to offer being a southern state being a beautiful state we have so much to offer. We can't stand to be an overall rating of fortieth. In the bottom third down on all the different ratings whether it's corporate individual incomes overall rankings this that's just not acceptable there are things we can do now to position ourselves in a better spot D. F. and they can only do static they cannot do dynamic at this point so it's a snapshot. We can be penny wise and pound foolish and this is a perfect example of that so. Just to give you an idea of what we're looking at long term I want to compete with you time I want to compete with Florida and New Hampshire and South Dakota and Tennessee especially Texas so why not we've got a lot to offer. Represent a very good. Okay representative Fortner you're recognized. Thank you Mr chairman just clarify for my. Simple Minds. The impact statement that's projected is twelve million dollars a year correct. Yes Sir okay put put my mind at ease if I heard the answer to your question young man you said that. the benefit to Arkansas would be. Fees charged by the attorneys and CPA's. did you say that. That was one example yes Sir of of some some anticipated benefits that that's a lot of fees to get us back flush there has to be some other benefits besides just the fees that the attorneys and CPA's of a benefit from. Well you have not only the attorneys the banks the financial institutes in managing this the accountants money follows money that's the secret once the word gets out there's a reason these states are doing this because it works so why not roll out the welcome mat and bring those businesses and domicile those tracks here. Okay I'm I'm I'm not against a. Tax reduction but the I wanna see some benefit from it. Those taxes so for we all realize I hope that taxes are the only way that our government has to make money. Yes Sir you know we can't printed unfortunately but that's generally we got to make money we can't cut it all out. No Sir but we contracted to come in and we can encourage it to invest in Arkansas and when we do. The the rising tide lifts all boats. And the more money coming in Arkansas and the more they invest in Arkansas whether it's at the gas pump or at the bank that's that's one more item we're going to tax along the way so why not get them to bring their money and invest here. Thank you Mr chairman thank you president Fortner representative Michael and. Thank you chairman so I love this bill I'm actually trustee for several trusts and three of them that were set up the financial adviser recommended we set up in a different state other than Arkansas because of the financial impact of doing that so they are set up in a different state at this point so I love that you're bringing this and making us competitive I do spend a lot of money for the trust as rather on it just financial advisors CPA's taxes those kinds of things so there is money that will come in and I do agree with you I do think that people will bring in trust to the state again once we have this taken out so thank you for bringing that in you're most welcome thank you thank representative representative Lynch you're recognized yes just one question around the revenue impact. If if the trust is ever dissolve. The big gain in that trust will be taxed at that time because everyone is distributed to the beneficiaries is that correct. Generally speaking yes I agree with that. So actually we're not we're just shifting the tax collection is what we're doing. Delay in. Yes I yeah okay I would generally agree with that I think there's there's there's different types of non grantor trusts they want to get into that today so that kind of changes the analysis a little bit but generally speaking I agree with with what you're saying. Representative Cavenaugh you're recognized. Thank you Mr chair so I just wanna make sure we're all trying to figure out if we're taking twelve million dollars out the state had a we get that how do we how does the state get revenue back that's really what everybody's asking but when you talk about fees and charge on this really what that boils down to is that income that these businesses are not to be paid back in taxes to the state of Arkansas is that not how the state of Arkansas recruits part of this are we even more than twelve point one million is to the fees and other services that are cool are actually occur on the stress. And the people that will come probably to help work the stress so what we do is it's really kind of economic development in a sense because we're getting more income coming into the State of Arkansas that taxes will be collected on thank you representative Cavenaugh I think you just close from my bill beautifully. Thank you. A representative right you're recognized. Member and is this your question I think we're going to get the the FNA come to the table give us their take on this month representative right you're recognized thank you Mr chairman you know we're talking twelve point one million but. You know you put that in people's pockets. In L. A. is that not does not have a very good chance of compounding you know a actual income coming. Yes Sir it does thank you. Thank representative members see no one else on the list of questions at this time we could get the FNA to give us their take on this bill and then representative once we'll come back to you to let you close. Yes on this. Thank you Mr chairman members of the committee Paul gearing with the FAA we have discussed that we generate a fiscal impact statement for house bill twelve forty of twelve point one million dollars in general revenue beginning in fiscal year two thousand twenty four that figure is based upon actual two thousand twenty one fiduciary income tax returns that were filed by these trusts that would be subject to the provisions of house bill twelve forty I would be happy to answer any questions about the fiscal impact statement I don't have a DFA's does not have a position on the bill thank you Paul we have a question from representative gene you're recognized thank you Mr chairman Mr hearing I'm assuming all the states that do this or not income tax states. The entity is an exempt trust right the so so how many exempt trust do we have in Arkansas. I'm not certain how the number of jobs come up with twelve point one okay those are the of the actual returns that were filed that are paying tax on their income for exempt first those are on the non grant or trust that are all right taxable trusts so we we don't know how many how many filing we have one I'd be happy to get the number we can get that number of actual returns that are filed okay and so there's no state that has income tax that has his way for. Not to my knowledge okay but I I just don't know what have all right in in in the big picture we're trying to get the income tax down for everybody. And I know you all supported it I didn't know the military tax cut because it was taking a very few. Twenty career twenty year career people and one for the general people that served in the military we did a specialized tax to make them tax exempt that's correct we're basically this would be the bill be doing the same thing this would be a bill that would allow full exemption for these types of trust that are currently paying income tax if we're trying to get this income tax down for everybody. The more we cherry pick and pick certain entities that are tax free it will be much longer to get to get the US state income to the extent of the roll for everybody well I'm I would certainly want to withhold any any position of DFA on this particular bill I've only authorized to speak about what the revenue impact would be representing okay I'll just thank you. All right members any other questions for debate. Okay thank you Bob appreciate it thank you all right members any other questions for representative Lundstrum injury tax exempt but we're not seeing as anyone audience wants to speak for or against this bill. All right Roger Lynch and you want to close your bill keep in mind we're not going to take a vote today will will do that at a later point but you're recognized to close for your bill thank you colleagues I think there's been some great discussion. I think this bill puts us in a much more competitive position with today states like Florida Nevada New Hampshire South Dakota Tennessee and Texas we need to be competitive and with that I would appreciate any questions if you would like to meet afterwards I'm available With that I'll close all right thank you for that representative thank you for coming all the way down to that testimony appreciated members there's nothing else on the agenda so thank you for your hard work with that we are adjourned.