Manufacturers face an astronomically high tax burden for doing business in Arkansas, according to a new study by the Tax Foundation.
From the Tax Foundation:
Mature firms generally experience above-average tax burdens in Arkansas, which has high sales taxes, unfavorable apportionment and service sourcing rules for most firms, and a throwback rule.
Arkansas is one of the few states to tax both equipment and inventories under its property tax, though property tax rates in the state tend to be fairly low, keeping the effective property tax burden modest. However, new firms can receive a 65 percent abatement of their property tax burden for 15 years.
Manufacturing firms experience particularly high tax burdens in Arkansas, which can be attributed to a high combined state and local sales tax rate, an antiquated capital stock tax, and a slightly above-average corporate income tax burden on manufacturing. The mature labor-intensive manufacturing operation ranks 39th nationwide with an effective tax rate of 12.5 percent, while the mature capital-intensive operation experiences a 16.2 percent tax burden, coming in 44th nationwide.
According to the study, Arkansas has the 39th least competitive tax rate for labor-intensive manufacturing and the 44th least competitive rate for capital-intensive manufacturing.
One of the reasons for the high cost of doing business in Arkansas is our high state and local sales tax rates. Arkansas had the second highest state and local sales tax rate in the nation in 2014.
This problem could be solved by eliminating our ineffective “sales tax holidays” and making broad-based sales tax cuts for all Arkansans.
Another solution would be to end special elections that allow localities to sneak through sales tax increases by setting up elections during times when low voter turnout is expected.
In short: Arkansas has more work to do in order to become a business-friendly state.