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 in sales to Arkansas in the current or immediately preceding tax year before a corporation would have income tax nexus here.

Gehring said DFA’s analysis, which included the chamber’s requested changes, showed no negative state general revenue impact. “They authorize DFA and Senator Kroll to state that they are in support of this bill,” Gehring told the committee.

Committee members asked how the $250,000 threshold would operate if a taxpayer’s sales fell below the threshold in a subsequent year. Tommy Burns of DFA and other staff explained the bill as written looks to current or immediately preceding tax-year sales and, as Burns summarized during questions, a taxpayer would lose nexus if the minimum were not met for two consecutive years.

Electronic-recycling grant program (SB 369)

Senate Bill 369, presented by Senator Missy Irvin, would remove the electronic-recycling grant component of the Arkansas Computer and Electronic Solid Waste Management Act. Irvin said the program requires that 25% of proceeds from state surplus sales of computer and electronic equipment be transferred to the Department of Energy and Environment and distributed as grants. She said the department is currently using only a minimal amount to cover administrative costs and that the program “no longer yields a positive cost benefit,” so the bill would redirect the 25% to marketing and redistribution of state surplus.

Ad valorem valuation definitions (SB 573)

Senate Bill 573 (presented by Senator Jim Petty with counsel Wyatt Swinford and other witnesses) seeks to codify and unify the statutory language that defines the standard of value for ad valorem taxation as fair market value. Counsel said Arkansas case law uses fair market value, but the statutes use multiple, inconsistent terms such as “true value,” “usual selling price,” and “market value.” The bill would add a statutory definition to make the standard explicit and to provide basic appraisal concepts in statute, which proponents said would aid taxpayers, assessors and appraisers.

Local levy collection and SB 500

Senate Bill 500 would allow certain local levy assessments (the example cited was the Crawford County Lehi District created in 1909) to be collected through the existing property tax collection mechanism (assessor/collector) rather than by separate billing from levy boards. Senator Petty said the change responds to administrative difficulties where some levy boards mail their own bills; the bill’s amendment also reflected input from county collectors and the Association of Counties to avoid creating undue administrative burdens for county officials.

Guidance for extending expiring taxes (SB 577)

Senate Bill 577 would direct DFA to provide additional notice and administrative guidance to counties and municipalities about the procedures and timelines needed to extend taxes that voters previously approved, after committee members described at least one instance where an administrative notice or filing error caused a tax to expire despite voter approval. Senator Petty described the bill as intended to reduce confusion and ensure officials know the steps and timing required to avoid an unintended lapse.

Tax on synthetic cannabinoid products (SB 605)

Senate Bill 605, presented by Senator Dismayng, targets synthetic cannabinoid products (Delta-8/Delta-9 and similar chemically altered hemp derivatives). Committee members described widespread retail availability, including sales near children, and said enforcement is uneven following federal hemp law changes and a court injunction affecting an earlier statutory ban. The bill would impose a 50% sales tax on those products and route the revenue to state general revenue; sponsors said the tax would also create reporting that helps track the volume of sales of products that they contend should not be sold.

Other bills advanced

The committee approved several additional bills with limited debate: a change to give taxpayers 60 days to assess newly purchased vehicles to match an existing 60-day sales-tax payment window (House Bill 1759); a farmer sales-tax identification card (House Bill 1594) that would issue an ID to qualifying Arkansas farmers for a fee ($20 initial issuance, $10 renewal) and an eight-year validity period; and a technical fix clarifying how newly incorporated municipalities receive turnback distributions currently taken from county turnback funds (House Bill 1522).

Votes at a glance

- SB 567 (Multistate Tax Commission updates; market-based sourcing; $250,000 nexus threshold; 10-year telecom carve-out): Due-pass motion; mover Senator Boyd; second Senator Petty; outcome: passed (voice vote). - SB 369 (Eliminate electronic-recycling grant; redirect 25% of surplus sales proceeds): Due-pass as amended; mover Senator Petty; second Senator Boyd; outcome: passed (voice vote). - SB 500 (Collect certain levy assessments through county tax collection): Due-pass as amended; mover Senator Boyd; second Senator Crowell; outcome: passed (voice vote). - SB 573 (Statutory definition of fair market value for ad valorem code): Due-pass; mover Senator Petty; second Senator Crowell; outcome: passed (voice vote); recorded opposition: Senator Dismayng (no) noted during debate. - SB 577 (Guidance for extending expiring taxes): Due-pass; mover Senator Petty; second Senator Crow; outcome: passed (voice vote). - SB 605 (50% sales tax on synthetic cannabinoid products): Due-pass as amended; mover Senator Crow; second Senator Caldwell; outcome: passed (voice vote). - HB 1759 (60-day assessment window for vehicle purchases): Due-pass; mover Senator Boyd; second Senator Petty; outcome: passed (voice vote). - HB 1594 (Farmer sales-tax ID card; $20 issuance/$10 renewal; 8-year validity): Due-pass; mover Senator Caldwell; second Senator Crow; outcome: passed (voice vote). - HB 1522 (Turnback distributions for newly incorporated municipalities; technical corrections): Due-pass; mover Senator Crow; second Senator Caldwell; outcome: passed (voice vote).

What’s next

Committee members said staff will contact sponsors listed on the active agenda to determine whether items remaining on the active list will be presented at the next meeting. The panel adjourned after completing the listed items.

Ending: The measures advanced by the Revenue & Tax Committee now move to the next stage in the legislature according to normal Senate procedures; several bills include statutory or administrative changes that proponents said merely codify existing practice, while others (notably SB 567 and SB 605) change how businesses or certain retail products are taxed and reported.