Senate Revenue & Tax committee advances package of tax and tax-administration bills, including market-based sourcing and a 50% tax on synthetic cannabinoids

The Arkansas Senate Revenue & Tax Committee on Thursday advanced a slate of bills affecting corporate tax sourcing, local levy collections, property tax definitions and the taxation of cannabinoid products.

The panel approved Senate Bill 567 to adopt updated language from the Multistate Tax Commission that shifts sourcing of sales of services from a cost-of-performance rule to a market-based approach; it passed a separate bill to place a 50% sales tax on certain synthetic cannabinoid products; and it approved measures to eliminate a small electronic-recycling grant program, clarify the standard of value for ad valorem taxation, streamline collection of levy assessments through county tax collectors, and provide administrative guidance for extending expiring taxes. The committee also advanced three house bills on vehicle-assessment timing, a farmer sales-tax identification card, and turnback distributions for newly incorporated municipalities.

Why it matters: The market-based sourcing change in SB 567 would align Arkansas with the majority of states that impose corporate income tax and could change how multistate businesses apportion sales to Arkansas. The 50% tax on synthetic cannabinoid products in SB 605 is notable because it targets products that committee members said are often sold in retail outlets despite state bans and court rulings, and the tax is intended to create a reporting trail.

Market-based sourcing and SB 567

Senate Bill 567, sponsored for discussion by Senator Kroll, would adopt updates to the Multistate Tax Commission compact and change Arkansas law so that sales-of-service receipts are sourced under a market-based approach rather than the current cost-of-performance rule. Paul Gehring of the Department of Finance and Administration (DFA) told the committee the Multistate Tax Commission updated its model language in 2014 and that 34 states with a corporate income tax have adopted market-based sourcing. He said the bill includes two changes requested by the state chamber: a 10-year carve-out allowing certain telecommunications firms to continue to use cost-of-performance unless they elect otherwise, and a nexus threshold requiring at least $250,000…