Arkansas tax cuts lower taxes and increase farm credit.
More tax breaks are on the way for Arkansas individuals and businesses as the governor signs a new tax cut bill. Arkansas’ new tax cuts will reduce the state’s income tax bill by more than $800 million over the next two years. The tax cuts are estimated to affect about 1.1 million taxpayers.
Arkansas’ New Tax Relief for Individuals and Businesses
On Wednesday, Gov. Sarah Huckabee Sanders approved legislation to lower the state income tax during this week’s special session. The bill lowers the state’s top corporate and personal income tax rates, while a separate bill increases the farm property tax deduction.
“We are moving in the right direction, and we are doing so responsibly,” Sanders said at a press conference before signing the bill.
Sanders, who has signed three tax cuts since taking office last year, wants to phase out the levy over time. The latest bill (HB1001) retroactively reduces the top individual tax rate from 4.4% to 3.9% and the top corporate tax rate from 4.8% to 4.3%, effective January 1.
Those in favor of the tax cut argue that the state’s finances are strong and that Arkansas is estimated to end the fiscal year with a $708 million surplus. Additionally, the tax cut will result in significant savings for taxpayers.
A fiscal analysis from the state Department of Finance and Administration estimates savings to individual taxpayers of $384 million in 2025 and $256 million the following year. Likewise, the company’s savings will be $99.3 million in 2025 and $66 million the following year.
Opponents of the bill argue that because the benefits favor higher earners, the state should use the surplus to reduce high maternal mortality rates and provide more services for people with disabilities. The new law also requires the state to set aside $290 million of its surplus in a reserve fund for use during times of economic uncertainty.
More Farm Tax Credits
In addition to the tax cuts, Sanders signed another bill (HB1002) that would increase the farm tax credit from $425 to $500 retroactively on January 1. During the 2023 legislative session, lawmakers increased the tax credit from $375 to $425.
The Arkansas Department of Finance estimates HB1002 would provide $46 million in property tax relief in 2025 and $47 million the following year.
Originally, lawmakers expected to adopt the tax cut plan later this year. But the plan was fast-tracked after the Legislature adjourned last month without agreement on the state Game Commission budget. This has raised concerns about the sustainability of the agency that oversees hunting, fishing and wildlife conservation.
So on Wednesday, Governor Sanders signed a compromise budget proposal for the agency to address concerns about the maximum salary of agency directors.
