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More tax relief is coming for Arkansas individuals and businesses now that the governor has signed new tax cuts into law. The new tax relief from Arkansas will result in a drop in income tax bills by more than $800 million over the next two years. The tax cuts are estimated to impact about 1.1 million taxpayers.
New tax relief from Arkansas for individuals and businesses
On Wednesday, Gov. Sarah Huckabee Sanders approved legislation to lower the state's income taxes during this week's special session. The legislation lowers the state's top corporate and individual income tax rates, while separate legislation raises the homestead property tax credit.
“We are moving in the right direction and we're doing so responsibly,” Gov. Sanders said at a press conference before signing the legislation.
Sanders, who has signed into law three tax cuts since taking office last year, wants to phase out the levy over time. The latest legislation (HB1001 ) reduces the top individual tax rate from 4.4% to 3.9% and the top corporate rate from 4.8% to 4.3%, retroactively, i.e., from Jan. 1.
Those in favor of the tax cuts argue that the state's finances are robust and Arkansas is estimated to end the fiscal year with a surplus of $708 million. Also, the tax cuts would result in significant savings for taxpayers.
A fiscal analysis from the state's Department of Finance and Administration, estimate $384 million in savings for individual taxpayers in 2025 and $256 million in the following year. Similarly, the savings for businesses will be $99.3 million in 2025 and $66 million the following year.
Those against the legislation argue that the benefits favor higher earners, and thus, the state should use the surplus to reduce the high maternal mortality rate and to provide more services to people with disabilities . The new legislation also requires the state to set aside $290 million from the surplus into a reserve fund for use in times of economic uncertainties.
More homestead tax credit
In addition to the tax cuts, Sanders signed into law another legislation (HB1002 ), which raises the homestead tax credit from $425 to $500, retroactively from Jan. 1. During the 2023 legislative session, lawmakers raised the tax credit from $375 to $425.
Arkansas' Department of Finance
estimates HB1002 will provide $46 million in property tax relief in 2025 and $47 million the following year.
Initially, lawmakers expected to take up the tax cuts later this year. However, the plan was fast-tracked after the Legislature adjourned last month without a consensus on the state Game and Fish Commission budget. This raised concern over the continuity of the agency overseeing hunting and fishing and wildlife conservation.
Thus, on Wednesday, Gov. Sanders signed a compromise budget proposal for the agency addressing the concerns over the maximum pay for the agency's director.
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