Revenue & Tax - Senate

You. The call of Senate Revenue and Tax meeting to order for those of you all that here or have come here for SP two ninety three it will not be granted you were working on an amendment to it and so if you're here for that particular bill will save you the problem I have in state here in. listen to the other bills but you're working study if you like first bill is Senate bill one eighty one senator garner. And I understand that you have a Amendment. Okay we'll take a brief pause and let you pass at. Sure the person to be a little bit more for. You like to explain your motion sure the minutes pretty much the new content of the bill so I can do any minute now discussed basically the contents of it it's simply the same but change the language to better. coordinate with D. F. and a on the streamline agreement which I'll explain in more detail so it's up to you which way you on the head on as chairman. Members to a motion to. The motion to adopt by Senator Hickey Secondus Senator Ingram all in favor say aye. Lows NO center you present your bill as amended thank you so much Mister chairman and members of this distinguished committee one six times a year for families when children go back to school I know kids get excited about buying new clothes and senior friends didn't equipment they need parents often if you go to Walmart will see him in there were school packing list and talking with teachers about a final exactly what they need to buy many of you know what it's like to go to Walmart and see that crowd in there that we can before school starts it's also stressful time for many families because of the costs associated with buying those supplies buy new clothes school supplies expenses especially for families that have multiple kids to have to go back to school that's why this General Assembly in a great idea shepherded by Matthew Shepherd. Past the sales tax exemption holiday up before the school year started that was passed back in two thousand eleven. If you look at the FNA there's a list of different items you can actually exempt school clothes school supplies thanks to that nature and is taking place August seventh and August eighth of this year. Like I said this law is put in the gut put in almost exactly ten years ago to the this month. What would give or take a month to. Now as you will know a large change in the last ten years. First we know that the rise of electronics is fundamental to our education system. Most schools now have homework online they have the ability to use tablets do you have program and to watch videos to fundamental things for our education system I see my kids they are in school yet but my son Lincoln gets on his tablet in apartment one in learning apps like ABC mouse and he'll sit there for an hour is planning on that's the best parenting but I do it every once in awhile. The reality is that the tablet or iPhone is just as critical to education today as a pen and paper was for us we went to school. More pressing is covert nineteen pandemic as you know we have she had to shift dramatically in and quickly to E. learning or online courses. What we could imagine a year ago now is normal place in tablets in computers and electronic devices are key to making sure that our kids have that. With all the change we know this can get expensive and we know that our kids and our parents need relief your words they can get those electronic devices even the lower end tablets or computers can cost a hundred two hundred dollars and if your bond multiple ones the sales tax can adequate. I say all that to say this. We need to add the same kind exemptions for the electronic devices as we do other school places the school us plus you me where to provide the same kind of early to our family that's what this bill does if you go to the amendment this is the change the language that we see the changes computer means an electronic device the except information computer software computer storage material hand held devices printer supplies and other items of that nature. The reason for the changes because we're part of a streamline agreement with other states any time we make changes to that we could come out of compliance of the language is a correct my original draft the bill of the if an eight notify me that was a good chance we could actually be out of compliance with that so I had based on the recommendation from the fiscal impact statement staff draft draft the amendment to better in line with that agreement that's what's a little bit less precise than my other ones if you look at my other definition of excluded some things and others and to kind of rectified at to make sure we knew what it meant opera Legislative intent as you well know legislative intent that's having legal weight was a good course corrector for agencies of the courts if they're trying to figure out exactly we're trying to do this finally we change the date because you have to notify the agreement within sixty days for change and we could've been in violation of not doing the change in within correct amount of time so what this will do allow the law to go into effect this year but actually won't impact the sales tax exemption until next year that's just the way it had to work through the session and time restraints what that Mister chairman committee members I'll take any questions. Okay impact is one point five nine million this change may affect that but I don't think I'll be dramatic one we will we'll have of Mr gearing up for the minute members of the questions in center. Senator Hickey Dr. Thanks. That order. Yes he gives you Turner Michael. I'm sorry Mr Page one line thirty four of the original bill it's an electronic device includes without limitation and we tried to list a few. But with your amendment is taken that is taken out the includes without limitation for correct correct the Amendment of two parts it narrows what can be done in that and it also NARAL's on what we can exclude from that which is kind of a double edged problem I thank but it does not have the with inclusion is more defined in that way but. That's what the legislative intent I was worried that maybe they would include tablets or iPhones which can be just a central thank you Sir yes Sir. Are there other questions. Mr Gehring. Thank you next. State your name for the record please. Good morning thank you Mister chair Paul hearing Arkansas department of finance administration okay. At we did release a fiscal impact statement for Senate bill one eighty one we did identify the streamlined sales tax issues I did take a chance to review center garner's Amendment looks like the issue that we were concerned about mainly with the library of definitions to comport with the sales tax holiday requirements of the rules my initial review of the amendment appears to bring those concerns to a close so I would only be speaking today about the revenue impact that we had prepared for this bill. Of course with these changes this might potentially change the dollar figure for the revenue impact the revenue impact that we have currently that we provided was a a one point nine five million dollar reduction to stale state sales tax revenues. I'd be happy to answer any questions regarding the bill or I'm sorry about that the fiscal impact statement. Three the but we can fire that it would be a deduction in that correct the Senator Hickey there there was a we were looking at the library of definitions there were few items that we did not see a path to be able to exempt and those were the computer mouse the computer keyboard and the computer monitors but the but the computers the printer and those would be include included within this amendment that senator garner has offered to the committee today so there it looks like what what what the ultimate conclusion would be that would be less items that could be purchased under the sales tax holiday. Thank you Sir thank you. Are there other questions for Mr. Seeing none thank you thank you Mr senator garner would you like close revealed I'm close listeners anymore question and you're familiar with the rules that we were we will not give a vote on this bill until we get later in the session will we know what kind of money we have to take it is yes Sir can you explain a little bit more detail form out I'm a little ignorant about when I need to come back how that would work exactly just LeasePlan it once once we get through we will give you a call and and to come back and we will give you a vote on your on your bill thank you. okay. Senator Sturch are you here for eleven fifty eight. If you would come. Review question. No Sir just in a cease in regards left on that the. But what the question he asked we we did someone have an agreement that if there was some things that were related items such as the unemployment or possibly even what we're about to look at with the PPP since those were due to the pandemic that we would we would go ahead look at truck possibly taking a vote on those. Right. Okay. Okay well I just did not there to be any confusion that we were not allowed any out because I know that we've had those discussions thank you Sir okay. Senator Sturch you're here with House Bill Evans fifty eight yes Sir in your name for the record and you may present your bill James Sturch state senator for district nineteen Mr if you don't mind what I also have an by the department of corrections chief counsel to come join me at the table absolutely you will. The. You can remove your mask if you feel comfortable it's easier for us to understand you if you would give your name. Thank you Mr chairman my name is Christine crier I'm the chief legal counsel for the department of corrections okay if you would like to mark up with that close to you so we can. Yes thank you all right Senator Sturch. Thank Mister thank you members I appreciate ascribing with this sector grades had to be in the Judiciary Committee this morning so I appreciate her help and helping me present a hospital in fifty eight. Mainly does some cleanup language but also I'll tell you what substantive changes are we're changing in the code for this particular section of code from the division of corrections to the department of corrections to represent the changing transformation that would then allow the put the division of corrections as well as division of community corrections to take advantage of this constituting code the current language only allows them to use the prison construction fine to either construct are equipped facilities we're asking that that be changed in order for them to be able to purchase facilities as well as you may know some buildings that may be available to a would be at a great reduction and having to build a brand new reentry house or a halfway house or even a new correctional facility if needed better that's the main substantive change of the bill you may recall that their trust fund is funded by a dollar fifty on each card account that's where this money comes from right now there's about thirteen million dollars I believe in that sign that the subsidy change also that you'll see is on Page two line eleven through fifteen this is current practice but given that this will give them more flexibility I wanted to make sure that this was in code as far as how that process would go as far as reviewing facilities to be purchased or or whatever so that the process now is that the secretary will identify either at project or something that he would like and then the board of corrections is the one that actually proves whether to move forward that facility or not so thanks to that's been current practices far as the projects that they have on going now that like I said I wanted to be in code as well and with that miss chair I'll answer any questions. Members of the questions. Senator Ingram. A certain what we through just just let's just say make sure I understand the process what me through that if we want to acquire an existing facility you know there could be something we want to walk me through the steps of of how that would happen. The probably preferred. Thank you senator for the question I meant to do my best if I can to try to get an answer the wants the department of corrections has been able to analyze and determine a building that we may be interested in in purchasing which we could purchase for much less of a right then we could at least at the request within it be taken to by the secretary to the board of corrections before any decision could be made the board would need to necessarily approve on us at least attempting to go forward with our efforts if the board does not give their approval then the issue dies By making these changes to To this bill this wouldn't Now allow for us to be able to make recommendations not only for the Division of correction but to include the division of community correction so if for example we have a facility that we are interested in purchasing for to help use for a reentry program this would allow us to be able to take that option to the board of correction the through the secretary of corrections and to get their approval for us to then go forward record walk me through after that once they approve today. Then you can the board corrections approves that purchase. Then you would be able to use this trust money to is there any further that it don't have to come back for the legislature for any approval process through peer. Senator I'm looking over at our interim CFO Jeff. Geoff Geoffrey if I made deferred to him I believe he could answer the the question as far as the money trail and how all of that process far better than I could. Thank you. Welcome if you would give your nine statement for the record and you can answer the question okay Jeff jury on the controller for the department corrections and we would then go to at the. And DBA get their opinions and approvals thirty or resolution signed by at the and the board of corrections that a contract will be drafted which would allow us to drawdown money from the prison construction trust fund. And so that would be done outside of any legislative approval in other words if the board of questions of and of course the contracts would would come before peer okay that's there there is what one was a suicide oversight yeah. Of. Remind me do we have any private prisons in the state of Arkansas. No it's not okay I didn't think we did okay thank you. Senator Ricky you have questions yeah just a couple and I've been trying to trying to go through here how how much money how much cash is actually sitting in the trust fund right now with that said there's actually nineteen million seven there but there's a little over five Committee on current contracts there's working contracts that are actually outstanding so there's lower thirteen available okay if those were paid in full and and one other thing and I think it's included in the the old language. If you have any any other bonds or whatever before you all do this and of course I know that will do your board you should do it but all all. We're going to make sure all that cash flows before we make any of these purposes and things of that nature of another small language on certificates of indebtedness there's an open Page two line thirty but I'd have a little bit. The I didn't know what that was inclusive of the new purchasing I guess it would be so is it. This section to the replacement of any loans leases contractor bonds with. So in other words we're gonna we're gonna pay off the bond payments before. Yeah one and there is a bond that is pledged about two million dollars a year so that the proceeds from this out license the county to have half of it is pledge to a debt service. About half of it. September the payments or about two million a year. Interest in principle okay do you know about what the principle that is how are we just refinanced it I'm thinking it's probably about. Good guesses sixteen million I'd have to get back with you. Okay thank you certain. Are there other questions. Thank you Sir. Senator Sturch. Are you ready to close for your. Bills yes I appreciate it. I'm sorry did center okay we'll do you question. Thank Mr thank members like said we're not changing any parts of the process as you heard from the CFO and as Mary understanding that if the named department commerce of look at this as well and had given their approval and so I appreciate a good vote thank you Sir. Okay Senate this bill does not have a physical impact I have a motion from center Caldwell is do pass as second from center in room and. Earlier discussion on the motion. We don't have to. Yeah this one doesn't require financial impact. So all in favor say aye. Of those no. Congratulations. Senate this morning you or presenting house bill thirteen sixty one actually that you have. Very very well known representing future so that yes Sir in it so if you don't mind I mean I'm just like to say this was representatives stayed on top this is the beginning of expropriate them to make presentations the committee and I'll I'll chime in if necessary but with that if you don't mind Mr alternative represent disease you're welcome to present your bill thank you Mr chairman of the vote just wanna give you a quick background I think most your are pretty aware of this program but in early twenty twenty at because of the pandemic the federal government offered a much needed lifeline for local small businesses so this lifeline incentivized these employers to keep their employees on payroll that program was called the payroll protection act and it would offer loan forgiveness as long as these funds are used exclusively for wages health care benefits family medical and sick leave employee retirement benefits and payment of state and local taxes on these wages so we had three point three billion dollars to come in Arkansas that's forty two thousand four hundred and thirty three businesses that receive these funds and one of the biggest issues we have right now is Arkansas's lack of conformity. This increases compliance costs are local businesses but there's a bigger problem if we fail to update our tax code to the current federal tax code we will end up taxing this federal lifeline to the small businesses it's not just the PPP program that we're talking about this bill includes the E. IDL loans which are economic injury disaster loans there's emergency financial aid grants for students subsidies on existing SBA loans grants for shuttered venue operators in there some agriculture related products and here's well so with tax filing season under way thousands of business owners are discovering a painful reality that their PPP loans could carry a hefty tax bill courtesy of the state of Arkansas and this approach runs counter to the federal government's own treatment of these funds which were again crucial lifeline to the small businesses amid the pandemic. And yeah I'm aware of the fact that some of these businesses may benefit more than others from not taxing this money but I would contend that is likely more of a question of should they have been granted the PPP loans in the first place because nearly any business qualified since there were little to no restrictions on these on being awarded these loans and many businesses that receive these funds had no way of knowing if they were going to need him or not back in the early days of the pandemic. And I've heard to questions about the revenue impact so I want to be clear about that this is one time money and we cannot budget on one time money it's not in the forecast or the current budget so there's a difference between a revenue impact and a budget impact if we collect this tax money from our struggling businesses the only thing we can do with that is build a building or put it in a savings account it cannot be part of the budget since it's a one time deal. I say let's see this money in the hands of our small businesses and let that money circulated in the economy for years to come we're seeing unprecedented surplus revenue in our state in spite of the current pandemic and our small businesses are still struggling and they need our help in any now I think it's the right thing to do and I'll be happy to entertain any questions. Thank members all the questions. Sue Senator Rapert you have a question. Thank you very much I just wanted to reiterate that we thank you for bringing the bill and the work that both you and and Senators made it made on it because all points you made definitely valid could you restate for me I may have missed it I was trying to do two things at once like we do in here so what is the what do you think the revenue impact is what is going to be. The estimated revenue impact is thirty three million for the current fiscal year and then a hundred and seventy nine million for the following year course that includes both this initial round of PPP that we generally think about and then an estimation on the second round the PP. Well again I reiterate my support for thank you for that and the shows the fact that the legislature can respond when needed and so it's important we be involved in these decisions thank you very much. Senator call will. Thank register probably fix everybody in here but I won't disclose my daughter got one of those loans the. But but again just go of our ethics rules about I would suspect that the legislature and each teacher in the could could admitted to have of someone close to them that would do that I'm very much in favor of it so I appreciate your bringing understandable at thank you I would agree I think all this probably going to need to to revisit the financial disclosure or not financial disclosure but our our sentence closure. Senator Teague you have a question. Thank you Mr chairman and I had you thought about that Senate call well thank you is out my business got one and Not enough but we got seven and H. river given so I'm thankful for that. Remind me are we going to use one time dollars to pay for this. Hi the eminent it's still up in the air so what we were have right you know in front of use the revenue impact and I don't disagree that there's a revenue impact if we were to move forward and and tax the forgiveness clearly there would be a benefit to the state it would not be a reoccurring benefit but a one time benefit on any of these programs thank you for waiting to see right now is is you know what is this going to do to deface forecast this year's already in the books the twenty twenty one we're well ahead there could be revision but I don't know how you revised the forecast for members of the above is much as we are also I would contend that the negative thing that's happened in the eyes of you know someone trying to collect money in the state is that the expenses of already been incurred those of already been accounting for in the prior calendar year for most taxpayers and it would be hard to argue that you know that there's going to be an additional impact because of what we're doing here today in twenty twenty one twenty twenty two again it just goes back to that's when the forgiveness is going to happen where the timing issue occurs it's one time money on to that was forecasted the availability now. I thought our our previous discussion here we were going to use the surplus dollars to to pay for this I'm not too happy about spending. Regular dollars on that. Well the question is. I'm I guess I'm a little bit confused on what you mean by well I think we're good our goal is in general to set aside money to help our anything else you know that you're well aware that depends you know we get to the end of the road and what what we do with the current surplus and which we actually have as time goes on in this in this current disappeared something the money on hand versus what's coming and so we'll be able to make that determination my goal on a personal level would be set aside as much of that is possible because I don't think we're through the storm and I think we need to have all the backstop that we came in as far as paying for this is a one time Situation it goes back to how much your your point what is this going to do to forecast and that's not a number that that I have in front of me. Thank you Mr chairman could you ask Of Brandon to put of mine and my the disclosure of having received that in the minister or whatever thank you. The director. This we're doing those in there we make Committee disclosures I did not get a PPP loan and I don't know of any businesses but I cannot say obviously the family member somewhere may have been a recipient I have no idea on that but I know not my immediate family mixture. Senator Johnson or you make a disclosure. Yes in question as well all right I would add a family member that received as assistance for the PPP program my question is and I and representatives and senators may either want to being answers are both can answer this you outlined the purposes of the finding what you're supposed to do it the right way to spend the money which is primarily payroll taxes things like that if an individual or a business rather received the funds and. Any damage pose some numbers at Spence ninety percent of it on the things are supposed to spend it on and ten percent on something else are they taxable on the ten percent the amount that was is or is this just a blanket exemption it was so the way that it was set up you could take it as a loan if that's what you chose to do that was not forgivable so then you have a low interest loan that you'd be paying out of time the interest would be deductible you know at that point and so he didn't conform to the guidelines in wasn't or you know you your intention was not to achieve forgiveness then you just have a low interest loan on your books that the the federal government no from the federal government actually from these banks supported by the federal government that you would pay over time I'm not sure with the terms of this war so I guess I'm really asking is there's it's a it's a black and white thing there's really no gray area as far as some of Arkansas business receiving the the revenue from that funding of that loan which ultimately is forgivable and if they spent a technically stay spent a portion of it on ineligible things then then that's this is all going to balance out I guess in the I'm not look at it so anyone I did work for or look at four at the it changed over time most businesses we're trying to achieve forgiveness and I'm not sure if you can be you know partially forgiven or not forgiven I'm assuming so I know that they eased up on some the forgiveness guidelines and allowed me to spend additional money on utilities and rants and those sort of things as opposed to as initially outlined but I don't I don't know the percentages and how that fell out with the ratio they used on what would ultimately was forgiven what would carry forward as a loan well I don't mean anyway to criticize the hard work you know both done on this and other bill Senate is Mike this is this is the right thing to do both from a standpoint of our people and also the fact that I think this could have a negative effect. Our whole business economy the state if we didn't do it so I appreciate you bringing the bill I will support thank you Mr minister you're pointing that the goal with these these funds for a given to businesses with the every dollar be spent primarily focused on maintaining pay roll and keep the you know folks working in the you know the feds didn't say that you set aside a certain amount your state income taxes or anything along those lines as I think this is a immunity it continues a boost that was receive our small business owners and their employees and and helped soften anything that may have occurred through additional taxation in the following year. Senator Teague did just from something you said and I wanna make sure not thought I understood. This is the this does not include the ones that are currently about to be done the same way does not include round one and round two okay so this new round that's about to happen. The one that's on this will include those to yes. Okay which is going to be in the In the following tax year. With those particular loans are we still going to allow the Spence's to be deducted yes. We're gonna still wet on those rule allow the expenses to be deducted in addition to believe in the. Right tax effect on the income is coming in yep okay the if I could The second round is much more restrictive than the first round so it it would potentially be a lot less dollars we're talking about on the second first round was pretty much wide open if you said you needed that you can get it second round is not. Follow the same path in the second round yet the second round you have to you have to meet a number of thresholds can remember what they are on top of my head but you have to demonstrate a revenue loss. Yep in a lot of these individuals are not going to be taxpayers in the next coming couple years regardless of what we do here because they they were it. He said for me during this pandemic you really achieved an accelerated at your business or you really felt there was really not a whole lot of middle ground that second round of PPP launches really folks focused on the folks that have have truly struggled through the standard and. We discuss something about the you know wells in that case how how's that going to be treated so that is regarding in a wells this is not income that you had come in that you had an economic risk associated with and so you couldn't take these expenses of eminent go for three point that you can't take these expenses to generate an L. L. that they would carry forward to the following year sensually you're gonna have all your expenses come out on your tax return if that generation and I will you would back off the man of the loan that you had forgiven and then that's the amount that you could carry forward for in a well that's very simple five but. In general all maybe had not to be a fate that's explained halfway right. Yeah. Thank you Sir. Members of the other questions. If not. Mr Gehring. You have a. Financial impact. It. All right any any a new agreed with the the comment last. Okay. All. Centreboard. Senator wondered what your motion St. Well we've got a little bit of business before mass of. Hey. We. Buyer Greenman is this committee we have agreed not to take and and pass out legislation that the has financial impact but. This is a very timely piece of legislation that needs to come out again so to do that we all need a motion to suspend the rules. So a motion can be made Senator Ingram you may motion centric Johnson you second all in favor say aye. Opposed no. All right Senator Teague now you could like. Have a since the mix of the best motion Senator Rapert you second okay is there any discussion on the motion. Senator close your call. I figured you were closed it just took that is. all in favor say aye. opposed no. Thank you members thank you Mister Representative senator bill is passed seeing no other business we are adjourned.