Will Arkansas take a step toward a better tax code this year by repealing InvestArk?
InvestArk’s record shows that it’s done little to improve economic development in Arkansas.
InvestArk is a sales and use tax credit offered to businesses who invest $5 million or more at a single location in plant or equipment for new construction, expansion, or modernization.
However, legislative auditors found in a 2014 study that InvestArk isn’t a net benefit for the state, because job creation isn’t a requirement to receive the tax credit.
The study concluded:
InvestArk-only projects do not return positive cost-benefit ratios because they do not require job creation. Therefore the only potential tax benefits identified are potential construction benefits. InvestArk projects may result in new or updated facilities or equipment.
Gov. Asa Hutchinson considered trying to end the program last year, but he ultimately decided against it.
Fortunately, Senate Bill 362 — filed recently by State Sen. Lance Eads — would wind down the program while also phasing out the sales tax on repair parts.
This legislation already passed the Senate Revenue and Tax Committee this week; it is on the agenda for the full Senate on Monday.
If the bill becomes law, the state would stop receiving new applicants for InvestArk on July 2017. The sales tax that businesses pay on repair parts would then slowly decrease — until it eventually disappeared in 2022.
According to the Tax Foundation, SB 362 would improve Arkansas’s business tax climate from 40th to 34th in the nation.
Let’s hope this type of policy — that trades tax loopholes for broad tax reductions — becomes a model for Arkansas to follow in the debate over tax reform in the near future.