Legislative leaders and Gov. Sarah Huckabee Sanders are weighing the possibility of cutting the state's top individual and corporate income tax rates in a possible special session as soon as next month, legislative leaders said Monday.
The state's top individual income rate is currently 4.7%, and the state's top corporate income tax rate is 5.1%.
Sanders spokeswoman Alexa Henning said Monday in a written statement, "The Governor promised and delivered on cutting taxes so Arkansans would see more of their paycheck and the state would remain competitive in attracting businesses and more jobs.
"She believes we have to look at every opportunity we can to responsibly phase out the state income tax and will work with our partners in the legislature to determine the best path forward," Henning said.
In April, Sanders signed into law a bill that cuts the state's top individual income tax rate from 4.9% to 4.7% and the state's top corporate income tax rate from 5.3% to 5.1%, retroactive to Jan. 1, 2023. Act 532 of 2023 is projected by the finance department to reduce general revenue by $186 million in fiscal 2024 and $124 million in fiscal 2025.
Sanders also signed into law a bill that will gradually phase out the "throwback rule" on the business income of multistate corporations. Act 485 of 2023 is projected by the finance department to reduce general revenue by $10.6 million in fiscal 2024 and ultimately by $74 million a year in fiscal 2030 and thereafter.
Senate President Pro Tempore Bart Hester, R-Cave Springs, said Monday there have been discussions with the governor about a potential special session to enact tax cuts, and said he wouldn't be surprised if the governor called a special session during September.
He said he also has talked with the governor about the need for human trafficking legislation in a potential special session.
House Revenue and Taxation Committee Chairman Les Eaves, R-Searcy, said Monday the discussions about a potential special session have been focused on cutting the state's top individual income and corporate income tax rates both by "somewhere between" 0.2% and 0.4%, as well as a few other potential items.
He said there will likely be a special session before the end of the year, and sooner rather than later.
Sen. Jonathan Dismang, R-Searcy, co-chairman of the Legislature's Joint Budget Committee, said Monday there have been discussions about cutting the state's top individual and corporate income taxes "in the ballpark" of the range of between 0.2% and 0.4% in a possible special session.
He said lawmakers are going to want more information "before finalizing what the amounts will be." There is some due diligence needed for determining the size of the individual and corporate income tax rate cuts, said Dismang, who also serves on the Senate Revenue and Taxation Committee. He said legislative leaders will need to have discussions with other lawmakers about what tax cut proposals they will be comfortable enacting, in light of an uncertain economy.
State Department of Finance and Administration spokesman Scott Hardin said the finance department doesn't have current estimates regarding how much cutting the state's top individual and corporate income tax rates by 0.2%, 0.3% or 0.4% would reduce state general revenue a year.
Senate Revenue and Taxation Committee Chairman Jimmy Hickey, R-Texarkana, said he expects the Legislature to be called by Sanders into a special session to consider enacting tax cuts, and potentially a few other items.
Some state Capitol insiders speculated a special session may be held as early as Sept. 11-13. State lawmakers are scheduled to be at the state Capitol for meetings of the Legislative Council and its committees during the week of Sept. 11-15.
During an appearance on the "Capitol View" television show that aired Sunday, Dismang said, "I think it's becoming pretty clear, and I think we'll hear some things soon, that we'll have a special session prior to [the] end of the year.
"I think one of the items will be tax cuts," he said. "I think there's some discussion about some other issues that I'm not as privy to that may make the call. But I do think that you'll see us focus on some reductions on the corporate and individual income tax cuts."
Sen. Clarke Tucker, D-Little Rock, and Dismang said on the "Capitol View" show the tax cuts should be based on anticipated future revenue, not the surplus money the state has in the bank.
"You should not cut taxes based on a one-time surplus," said Tucker, who said he'd likely oppose more personal and corporate income tax cuts.
Dismang and Tucker said a special session call could deal with clean-up language or items that have arisen that need a quick fix to clarify confusion.
At the Arkansas Economic Developers and Chamber Executives annual awards luncheon Monday, Sanders said, "I've made no secret about the fact that I want to continue to phase out our state's income tax.
"I think that we are positioned well to continue chipping away at that," she said. "I do think we'll have the ability to do that within the next year to some degree."
In fiscal 2023 that ended June 30, Arkansas' general revenue surplus reached $1.161 billion, the state Department of Finance and Administration reported in July.
The fiscal year 2023 surplus is state government's second-largest general revenue surplus in any fiscal year, behind only the $1.628 billion surplus accumulated in fiscal 2022 that ended June 30, 2022. State government's third-largest general revenue surplus totaled $945.7 million in fiscal 2021 that ended June 30, 2021.
In a special session in August 2022, the General Assembly and then-Republican Gov. Asa Hutchinson enacted a four-pronged tax cut package that the finance department projected would reduce state general revenue by $500.1 million in fiscal 2023, $166.6 million in fiscal 2024, $69.5 million in fiscal 2025, $18.4 million in fiscal 2026, and $8.4 million in fiscal 2027.
The package included acceleration of a reduction in the state's top individual income tax rate from 5.5% to 4.9% retroactive to Jan. 1, 2022, and a cut in the state's top corporate income tax rate from 5.9% to 5.3%, effective Jan. 1, 2023.
The August 2022 special session came after the state reported the record general revenue surplus of $1.628 billion in fiscal 2022.
In the regular session earlier this year, the General Assembly and Sanders authorized a $177.7 million increase in the state's general revenue budget to $6.2 billion in fiscal 2024, with most of the increase allocated to education and corrections programs.
The finance department has projected a $423.3 million general revenue surplus at the end of fiscal 2024 on June 30, 2024.
The General Assembly and Sanders also enacted a measure to authorize the transfer of $1.4 billion in unallocated and unobligated state funds, including $1.3 billion in the general revenue allotment reserve balance, and up to $380.6 million in surplus funds from fiscal 2023 largely to set aside accounts in the restricted reserve fund for various projects, including prison construction and the state's share of public school building costs.
From the $1.161 billion fiscal year 2023 surplus, $710 million of that "remains uncommitted/available," Hardin said Monday.
Information for this article was contributed by Will Langhorne of the Arkansas Democrat-Gazette.