Half a Billion in Sales Tax Exemptions for State Businesses

December 9, 2002
Posted at: 6:45 p.m. CDT

JONESBORO, Ark. -- Arkansas legislators have plenty to prepare for before the next session of the General Assembly begins on January 13. The top item on the agenda: the state's budget for the next two years.

One issue facing legislators is the mandate from the state Supreme Court to fix the educational funding sysytem for public education that the court found unconstitutional in November. The assembly has until January 2004 to find a solution, one that experts say could cost between $400 million to $1 billion.

Many people that KAIT have interviewed have said that an increase in taxes is not what they would like the government to do to ensure the budget is not busted. Governor Mike Huckabee has proposed a sales tax increase. Upon digging deeper into record of the Department of Finance and Administration, it was found that the state has been giving sales tax exemptions to the tune of over half-a-billion dollars.

From railroads to school busses to newspapers. Those items are part of a long list of products and services that don't pay any sales tax.

"The current Arkansas sales tax law was adopted in 1941," said John Theis. "From the very beginning the law has contained some exemptions."

Those exemptions exist because a group or organization convinced the General Assembly that exemptions are necessary as a means to fairly compete with other businesses. But hidden in state law are millions of dollars.

"If you remove all exemptions that you could potentially remove under Arkansas law, the amount would roughly be $582 million," Theis said. "That is certainly not realistic and there's certainly interest groups that have a stake in each one of those exemptions that could argue strenuously that the exemtion that effects there group should not be affected.'

Sales tax exemptions from the sale of livestock, cotton in it's natural condition, and food from school cafeterias can be found in state tax law. In addition, machinery used directrly in the manufacturing process and breaks for non-profit organizations like the Boys and Girls Club exist.

"Certainly the General Assembly could consider the repeal of one or more exemptions as an alternative to raising taxes," Theis said.

If the assembly decided that it wanted to repeal a specific exemption, the law requires a fifty percent vote in each house. According to Theis' knowledge, however, there has never been any repeal of a tax exemption.