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VOL. 126 | NO. 36 | Tuesday, February 22, 2011

Ark. Senate Panel Backs 3 Tax Cut Measures

ANDREW DeMILLO | Associated Press

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LITTLE ROCK, Ark. (AP) — A Senate panel on Monday backed Gov. Mike Beebe's proposal to cut Arkansas' grocery tax along with reductions in the used car and manufacturers' utility taxes, setting up a potential showdown with the House and Beebe over reductions in the state's revenues.

Along with the proposal to cut the sales tax on groceries by a half cent, the Senate Revenue and Taxation Committee advanced measures to cut the state's sales tax on used cars and on manufacturers' natural gas and electricity costs. The measures could head to the Senate for a vote as early as Tuesday.

The cuts were approved days after the House passed its own trio of tax cut measures, despite Beebe's warning that they could threaten the state's budget. Beebe has said there's only room in his budget for the grocery tax cut, which would cost the state $20.8 million in the fiscal year starting July 1.

After fighting the House-led tax cut proposals — primarily a $44.5 million cut in the capital gains tax — Beebe indicated Monday he was more willing to give on the used car and manufacturers' tax cut proposals approved by the Senate panel.

"I'm not out there trying to pass them, if that's what you mean, but at the same time . . . I'm prepared to adjust for those other two," Beebe told reporters shortly after the vote.

Senate leaders said they believed the House-backed tax cuts would face a steep challenge in being approved.

"I just think we've probably given up about all the money we can give up," said Sen. Larry Teague, chairman of the Senate panel and the chief sponsor of Beebe's grocery tax cut proposal.

Beebe, a Democrat, won re-election primarily on his promise to continue cutting the sales tax on groceries. Since taking office in 2007, he's successfully pushed to cut the tax from 6 percent to 2 percent. It appears assured to pass in the Senate, where 34 of the 35 members have signed on as sponsors.

Teague expressed some reservations about the cut, telling reporters after the vote: "I don't love the tax cut."

"It's the only tax cut some people pay. It provides stability to tax collections in down times . . . I voted for it and I obviously support it, but I don't love it," said Teague, D-Nashville.

Senate leaders have also backed raising the exemption on used car sales from $2,500 to $5,000. The proposal would cost the state $5.8 million in the coming fiscal year and $7.4 million the following year. The proposal is backed by Senate President Paul Bookout, D-Jonesboro, along with the Republican and Democratic leaders of the Senate. Twenty-one senators have signed on as co-sponsors.

"It helps the regular working person out there buy a little better used car," said Sen. Gilbert Baker, R-Conway, the tax cut proposal's chief sponsor. "That money in saved used sales tax will flow back into the economy."

The manufacturers' utility tax cut mirrors a proposal passed by the House last week to cut the sales tax manufacturers pay on natural gas and electricity from 3.25 percent to 2.75 percent. Unlike the House bill, it also includes a phased-in tax break for high efficiency power generators.

State officials estimate the tax would cost $7.04 million in the coming year, but would cost $20.85 million by the fiscal year beginning July 1, 2013.

House and Senate leaders have said both chambers in the majority-Democrat Legislature will have to negotiate on which cuts to eventually send to Beebe's desk. Republicans are looking at reducing Beebe's proposed spending increases in his $4.6 billion budget to help pay for the tax cuts, primarily restricting a 1.86 percent cost-of-living adjustment the governor has proposed for all state workers.

Beebe has been most vocal about his opposition to the proposal by Rep. Ed Garner, R-Maumelle, to eliminate the capital gains tax on new investments in Arkansas companies and property. State officials say the proposal would cost the state $44.5 million if it goes into effect in the 2012 tax year, and would eventually cost the state $68.5 million annually — figures that Garner disputes.

The House approved that cut last week, along with a $3.8 million tax cut for manufacturers on utilities and a $3.7 million tax break for single parents. All three are now pending before the Senate Revenue and Taxation Committee.

___

Online:

Grocery Tax Cut Proposal: http://www.arkleg.state.ar.us/assembly/2011/2011R/Bills/SB276.pdf

Used Car Tax Cut Proposal: http://www.arkleg.state.ar.us/assembly/2011/2011R/Bills/SB274.pdf

Manufacturers' Utility Tax Cut Proposal: http://www.arkleg.state.ar.us/assembly/2011/2011R/Bills/SB275.pdf

Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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