Arkansas Legislative Committee Examines Sales Tax Exemptions

The Arkansas General Assembly’s Tax Reform and Relief Legislative Task Force held another meeting on March 19th and 20th to further examine specifics of the state’s tax code, this time as it relates to sales and use tax exemptions. This list includes many that directly impact agriculture. If any of these exemptions were to be removed from the state’s code, it would represent a tremendous new and burdensome tax on the agriculture industry, which is the state’s top industry.

The legislature and the governor are looking for ways to reduce income taxes for individuals and businesses, but there is not sufficient surplus revenues currently available to afford significant reductions to income taxes. Without a windfall from significant economic growth or other unforeseen revenue growth, such tax cuts could only be achieved by creating new tax revenues and/or making significant cuts to state government expenses. The task force is reviewing the entire state tax code and considering changes to accommodate new income tax reductions.

The Agricultural Council of Arkansas is strongly opposed to any effort to increase taxes on our industry. We urge all Ag Council members to contact their representatives in the General Assembly and the Governor to express opposition to raising taxes on agriculture through the elimination of sales and use tax exemptions already on the books or by increasing property taxes on agriculture. The agriculture industry is struggling to manage the economic challenges associated with a low commodity price environment that has lasted several years while input prices continue to increase. If these tax exemptions were removed virtually every agricultural input and other transactional expenses currently exempted would see an increase of state and local taxes by roughly 11 percent.

Below is a list of sales and use tax exemptions directly impacting the row crop industry:

Sales of dyed diesel. The sales tax was replaced by a per gallon tax. Ark. Code Ann. §26- 52-401(11)(A)(iii)
$22,590,621; (GR Portion – $15,639,661) (FY2017)

Sales of raw products, including Christmas trees, from the farm, orchard, or garden where the sale is made directly by the producer to the consumer, including sales by the producer to the consumer at farmers’ markets. Ark. Code Ann. § 26-52-401(18)(A)(iii) and (B)(ii) $485,752; (GR Portion – $336,290) (FY2017)
Sale of baby chickens in Arkansas. Ark. Code Ann. § 26-52-401(18)(A)(v)
$20,414,672; (GR Portion – $14,133,235) (FY2011)
Sales of twine used in the production of tomatoes. Ark. Code Ann. § 26-52-408(2)
$2,641; (GR Portion – $1,829) (FY2011)
Sales of bagging, packaging, and tie materials sold to and used by cotton gins in Arkansas for packaging and tying baled cotton in Arkansas. Ark. Code Ann. § 26-52-408(1) $248,157; (GR Portion – $171,801) (FY2017)
Expendable supplies for farm machinery that are used for baling, packaging, tying, wrapping, or sealing animal feed products. Ark. Code Ann. § 26-52-408(3)
$1,264,800; (GR Portion – $875,631) (FY2017)
Sales of cotton, seed cotton, lint cotton or baled cotton whether compressed or not. Ark. Code Ann. § 26-52-401(18)(A)(i)
$16,092,018; (GR Portion – $11,140,628) (FY2017)
Sales of seed to be used in the commercial production of any agricultural product or agricultural seed. Ark. Code Ann. § 26-52-401(18)(A)(ii)
$31,616,000; (GR Portion – $21,888,000) (FY2017)
Sales of agricultural fertilizer, agricultural limestone, and agricultural chemicals, pesticides, herbicides used in the commercial production of agricultural products, and vaccines, medications, and medicinal preparations used in treating livestock and poultry for commercial production. Ark. Code Ann. § 26-52-405
$62,400,000; (GR Portion – $43,200,000) (FY2017)
Sales of feedstuffs used in the commercial production of livestock or poultry. Ark. Code Ann. § 26-52-404(a)
$148,730,531; (GR Portion – $102,967,291) (FY2017)
Sales of machinery and equipment used exclusively and directly in farming for commercial purposes, including machinery and equipment used for production of sod and nursery products. Ark. Code Ann. § 26-52-403
$29,900,000; (GR Portion – $20,700,000) (FY2017)
Irrigation pipe carrying water from the well to the crop is exempt as farm equipment. Ark. Code Ann. § 26-52-403(a)(1)(B)(i)
$470,133; (GR Portion – $325,477) (FY2017)
Sales of livestock reproduction equipment or substances. Ark. Code Ann. §26-52-439
$30,091; (GR Portion – $20,832) (FY2011)
Agricultural water purchases that reduce groundwater use. Ark. Code Ann. §26-52- 405(4)

Sale of machinery and equipment used directly in manufacturing or processing. Ark. Code Ann. § 26-52-402
$106,531,945; (GR Portion – $73,752,885) (FY2017)
The first $50,000 of the purchase price of timber harvesting equipment is exempt if the purchaser’s primary activity is harvesting timber and if the equipment is used exclusively for harvesting timber. Ark. Code Ann. 26-52-431
$1,280,622; (GR Portion – $886,585) (FY2017)
Chemicals, catalysts, and reagents consumed in manufacturing. Ark. Code Ann. §26-52- 401(35)
$22,858,333; (GR Portion – $15,825,000) (FY2011)
Reduced rate on machinery and equipment purchased to modify, replace, or repair
existing machinery
or equipment used directly in manufacturing and service relating to
the initial installation, replacement, or repair of such machinery or equipment (Rate was
5.5% in FY2017 and scheduled to be gradually reduced to 0.625% by FY2023). Ark.
Code Ann. §26-52-447 and 26-53-149
$4,335,058; (GR Portion – $3,319,611) (FY2017)
Tax rate scheduled to be phased-out by July 1, 2022.

Sale of gas produced from “biomass” and sold for the purpose of generating energy, which is then sold back to the gas producer. Ark. Code Ann. § 26-52-429(a)
$44,939; (GR Portion – $31,112) (FY2011)
Partial sales tax exemption (0.625% rate in FY2017) on manufacturers’ use of natural gas and electricity used directly in the manufacturing process. Ark. Code Ann. §26-52-319 $57,800,000; (GR Portion – $44,300,000) (FY2017)
Sales of electricity, natural gas and liquefied petroleum gas used by a qualifying agricultural structure used for a commercial purpose, and qualifying aquaculture and horticulture equipment operated for a commercial purpose. Ark. Code Ann. §26-52-450 $11,140,780; (GR Portion – $7,712,848) (FY2017)
Sales of electricity, natural gas, and liquefied petroleum gas used by a grain drying and storage. Ark. Code Ann. §26-52-446
$4,226,540; (GR Portion – $2,926,066) (FY2017)

Sale of vessels, barges, and towboats of at least fifty (50) tons load displacement and the partsandlaborusedintheirrepairandconstruction. Ark.CodeAnn.§26-52-407 $311,608; (GR Portion – $215,729) (FY2011)
Sales tax exemption for gross receipts in excess of $9,150 of the selling price of a truck tractor (Class Five – Class Eight trucks). Sales of semi-trailers and sales of Class 6 and 7 trucks registered with the International Registration Plan are fully exempt. Ark. Code Ann. §26-52-436
$26,687,630; (GR Portion – $18,476,052) (FY2017)

More below:
Sales Tax Exemptions FY2017