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Lawmakers considering sales tax reduction for off-road diesel fuel Sunday, Sep 3, 2006 By Rob Moritz Arkansas News Bureau LITTLE ROCK - Users of off-road diesel fuel in Arkansas - farmers, city and county road crews, construction companies and timber haulers - would receive a sales tax break on fuel cost under a plan being developed by lawmakers. Democratic gubernatorial candidate Mike Beebe and Republican opponent Asa Hutchinson say they support the idea of giving farmers and other off-road diesel fuel users a sales tax break, which advocates say is needed because of a dramatic rise in diesel over the past two years - from near $1 a gallon in 2004 to the current $2.80 a gallon. "This tax break could be used by farmers, this could used by construction vehicles, it could be used by a lot of people," said House Speaker-elect Benny Petrus, D-Stuttgart. "They need some relief," said Petrus, who owns a farm. The tax relief being proposed would benefit a major Arkansas industry, said Rep. Travis Boyd, D-Piggott, also a farmer and co-chairman of the House and Senate Interim Committees on Agriculture, Forestry and Economic Development. The agriculture industry pumps more than $13 billion into the state's economy annually and accounts for more than 370,000 jobs, Boyd said. One proposal being discussed would charge the sales tax on half of the off-road, or dyed, diesel fuel purchased by the consumer, in effect cutting the tax in half, Boyd said. He said the proposal is similar to legislation recently approved in Missouri, although that tax break is available only to farmers. Another proposal being considered would remove the sales tax altogether and charge a special fee on every gallon of off-road diesel. Under the proposal, the fee would remain the same even if the cost of the fuel rises. Petrus suggested the fee could be 7 cents a gallon. A third option would combine a sales tax reduction and a small fee, Petrus and Boyd said. "I have great hopes that we'll be able to get something worked out for the 2007 session and that we'll be able to get some relief to all those people, not just to those in agriculture," said Boyd, who is term-limited and will not return to the Legislature next year. Proponents of the tax break would have to address the loss in state revenue. John Theis, assistant state revenue commissioner, said the sales tax on off-road diesel accounts for $37 million to $43 million annually. The sales tax is 6 cents per gallon, compared to the 22.5 percent sales tax on regular diesel fuel, he said. Whatever method of relief ultimately proposed, the goal is to try to reduce 6 percent per gallon tax, Boyd said. "Personally, I would like to see it go down to half, but that may not be feasible and that's a decision the next Legislature is going to have to make," he said. Petrus said he also would like to see some sort of financial incentive for farmers who use homegrown biodiesel fuel mixtures made from soybeans. "This would not only give them a break on the biodiesel, but also give them a break on the sales tax on off-road diesel," Petrus said. The next House speaker was sponsor of Act 2223 of 2005, which created a tax refund for companies that create biodiesel fuel in Arkansas. Beebe said he has discussed the possible tax break with Petrus and Sen. Percy Malone, D-Arkadelphia. The Democratic candidate said he likes the idea of rolling back the sales tax and replacing it with a 7 cents per gallon fee "so farmers will face a tax rate more equal to that before the price of diesel began to escalate." Beebe said he also likes the idea of a tax incentive for using biodiesel. "If a farmer chooses to use biodiesel in a B20 blend (20 percent biodiesel, 80 percent petroleum diesel), the per-gallon tax will only apply to the petroleum diesel portion," he said. "This will reduce the tax to 5.6 cents on the gallon. There would be corresponding decreases based on percentage for the B5 and B2 blends." Hutchinson said action was needed to help farmers. "One way to do that is through tax reform, and I would certainly support cutting the off-road fuel sales tax in half," Hutchinson said. "If we could do more, I'd be open to cutting the tax even further to give our farmers the relief they need." |
