Committee advances package of tax, education and veterans bills; soft‑drink excise tax set for phased reduction

The House Committee on Revenue and Taxation spent the session considering more than a dozen bills on taxes, tax administration and targeted exemptions, approving several by voice vote and advancing others for further consideration.

The panel voted to advance tax‑administration bills and several targeted exemptions — including measures affecting mileage deductions, electronic payroll filings and homestead treatment for disabled veterans — and heard extended testimony on proposed changes to business taxes, grocery taxation, and a multi‑year phase‑out of Arkansas’s soft‑drink excise tax.

Why it matters: Committee action could change how businesses and households are taxed in Arkansas, shift revenue flows used to support Medicaid, and alter the state’s approach to education savings and veterans benefits. Some measures passed with little debate; others drew sustained testimony from industry groups, state budget officials and health care providers.

Most urgent items — votes and outcomes

• Phase‑out of the soft‑drink excise tax (House Bill 1636). After nearly two hours of debate and multiple witnesses on both sides, the committee approved a bill that would phase down the soft‑drink excise tax in staged steps tied to sales‑tax revenue triggers. Representative David Ray argued the tax is “an economically damaging tax” and an outlier among states; opponents including the Arkansas Hospital Association and Department of Human Services warned the change would reduce restricted Medicaid trust‑fund revenue without a hard replacement guarantee. The committee approved HB 1636 on a voice vote and the bill will move forward for additional consideration.

• Grocery tax change (House Bill 1685). Representative Ken Underwood presented legislation to eliminate the state sales‑and‑use tax on groceries while preserving local taxing authority; members amended the measure per municipal requests and approved the bill by voice vote.

• Aircraft leasing/purchase clarification (House Bill 1807). Sponsors said the bill clarifies who may use the “lease option” rather than pay sales tax at purchase and codifies a 7.5% minimum annual lease rate used in other states. Supporters said the change prevents double taxation of aircraft held for lease; the committee passed the bill by voice vote.

• DFA authority for mileage rate (Senate Bill 412). The committee approved a bill letting the Department of Finance and Administration set the state mileage rate by proclamation (with a guardrail not to exceed the IRS rate by more than $1). Representative Rick McClure said DFA intends to match the federal rate and the committee passed the bill.

Other measures advanced with discussion

• 529 schoolwide accounts (Senate amendment concurred). Senator Clark Tucker and Dan Andrews of the Grove Foundation described legislation to authorize the state treasurer to accept roster information from schools so a foundation can establish 529 accounts for every student in an identified population, with parental opt‑out and safeguards for confidential data. The committee recorded passage.

• Disabled‑veteran sales‑and‑use tax exemption (House Bill 1738). Representative Cindy Crawford and veterans‑group witnesses described a proposal to extend a sales and use tax exemption to totally and permanently disabled veterans, modeled on programs in neighboring states. Witnesses said a 2006 Oklahoma law and other precedents informed the proposal; supporters argued the measure would help veterans with limited incomes. Testimony noted possible fiscal costs noted in DFA materials; the bill was presented for committee consideration.

• Tax holiday for firearm safety devices (House Bill 1699). Representatives and guests said the bill would add safety devices and secure storage to a short August tax holiday to make gun‑safety devices more affordable. Sponsors described the measure as an incremental public‑safety step and presented it to the committee.

• Repeal of the franchise tax (House Bill 1750). Representative Kavanaugh introduced a repeal of the annual franchise tax on businesses. The proposal drew sustained questioning about the estimated $28 million reduction to the education adequacy fund and the long‑term budgetary tradeoffs. Sponsors said the state has large balances in the adequacy account and argued reducing regulatory burden on businesses would spur economic activity; opponents flagged the potential budget shortfall.

• Vegetation management and utility rights‑of‑way (House Bill 1804). Proponents including Anton Janek and utilities representatives asked the committee to exempt utility vegetation‑management services and related equipment and chemicals from sales tax to avoid “tax pyramiding” and higher customer bills; DFA staff described statutory and rule distinctions between taxable “lawn care” and nontaxable brush/tree removal. The bill was presented for discussion.

• Health care‑sharing ministries (House Bill 1698). Representative Randy Torres presented a bill to extend current tax exclusions for employer‑paid health insurance to employer contributions for health‑care sharing ministries, allowing employer contributions to these programs to be excluded from taxable income. Committee members questioned regulatory and double‑deduction issues; the bill was presented.

• Electronic filing threshold for employer withholding (Senate Bill 503). DFA and sponsor Representative Eaton said lowering the threshold for mandatory electronic reconciliation from 125 to 75 employees will reduce paper processing and speed refunds; DFA estimated the change would remove roughly 24,000 W‑2 paper entries from manual keying. The committee approved the bill.

• Disabled‑veteran homestead exception for trusts and LLCs (House Bill 1809). Representative Les Warren presented a technical clarification allowing disabled veterans to claim homestead exemptions when the residence is held in an irrevocable trust or LLC if the veteran is the beneficiary or sole member. The committee approved the bill by voice vote.

What proponents and opponents said

Representative Clark Tucker, sponsor of the 529 school accounts provision, said the change “enables schools to directly work with the treasurer’s office to establish these 529 accounts” and preserves parental choice via opt‑outs. Dan Andrews of the Grove Foundation described an elementary‑school pilot and said the foundation would not receive students’ confidential data.

John Posey of the Arkansas Veterans Coalition described House Bill 1738 as a priority from a statewide veterans retreat and said, “This bill is...the right thing to do,” while Mark Diggs, a disabled veteran, told members the measure would honor veterans’ sacrifices.

Paul Gehring of DFA told the committee that statutory definitions and department rules govern whether vegetation‑management activities are taxable and cautioned that businesses performing mixed services must separate taxable items on invoices to avoid exposure.

Opponents of HB 1636 — including Janet Mann, deputy secretary and Medicaid director at the Arkansas Department of Human Services, and Beau Ryle of the Arkansas Hospital Association — warned that the proposed soft‑drink excise phase‑out would reduce deposits into the Medicaid trust fund used to draw federal matching dollars. Janet Mann said the trust fund’s soft‑drink receipts are matched at roughly 70% federal/30% state and that DHS had used about $53 million from the trust fund this fiscal year. Beau Ryle noted that a $10 million state reduction could reduce federal receipts as well and referenced multi‑year fiscal projections prepared for the committee.

Votes at a glance (committee action)

- HB 1636 (soft‑drink excise tax phase‑out): Motion to pass approved (voice vote); advanced for further action. Notes: approved after extended debate; bill ties each reduction to DFA revenue certification triggers.

- HB 1685 (state grocery sales‑tax repeal, local tax preserved): Motion to pass approved (voice vote); advanced.

- HB 1807 (aircraft lease/purchase clarification; 7.5% minimum lease standard): Motion to pass approved (voice vote); advanced.

- SB 412 (DFA set mileage reimbursement rate by proclamation): Motion to pass approved (voice vote); advanced.

- SB 503 (lower electronic employer reconciliation threshold to 75 employees): Motion to pass approved (voice vote); advanced.

- HB 1809 (disabled‑veteran homestead exemption for trusts/LLCs): Motion to pass approved (voice vote); advanced.

- Other bills presented and advanced for consideration or discussion: HB 1738 (disabled‑veteran sales/use exemption), HB 1699 (gun safety device tax holiday), HB 1698 (tax parity for health‑care sharing ministries), HB 1750 (franchise tax repeal), HB 1804 (utility vegetation management sales‑tax clarification), and provisions on 529 schoolwide accounts (concurrence on a senate amendment). Several of those were presented and sent forward; motions and final floor action will determine final enactment.

What’s next: Most bills approved by the committee will go to the House floor or to committee of jurisdiction for additional consideration. Those with fiscal impact or broader budgetary implications — notably the proposed repeal of the franchise tax, the grocery tax repeal and the soft‑drink excise phase‑out — are likely to receive follow‑up analysis by DFNA and discussion during later budget and revenue hearings.

Ending note: Committee members repeatedly asked DFA and agency witnesses for clearer revenue and administrative detail before final floor votes. Representative David Ray, sponsor of the soft‑drink bill, closed by urging an incremental, trigger‑based approach: “We can incrementally in a responsible way... phase this out,” he said, adding the bill would not reduce the excise tax until DFA certifies the sales‑tax revenue replacement.