LITTLE ROCK — The head of the state’s economic development agency asked lawmakers Wednesday to consider eliminating the sales tax industries and manufacturers pay on materials to upgrade their facilities.
The tax cut would reduce state revenues by about $40 million annually, but would ultimately save jobs and keep some industries from leaving the state, Grant Tennille, director of the Arkansas Economic Development Commission, told members of the legislative Joint Committee on Economic and Tax Policy.
"We need to do everything we can to incentivize companies to reinvest in their facilities in Arkansas," Tennille said."That’s what keeps them here, that’s what helps them grow. We shouldn’t punish them for reinvesting."
Sen. Jake Files, R-Fort Smith, co-chairman of the panel, said after the meeting that such a tax break should be discussed but he was not ready to fully endorse the proposal.
"If (AEDC) can … bring some historical perspective to us to show that they can quantify that (the sales tax cut) doesn’t necessarily cost us those large dollars, but it saves us money in the long run, I think it’s imperative that we at least look at it and put it on the table," Files said.
Files said with the regular legislative session five months away, it was too early to be endorsing every tax cut that comes along.
"I’m not for just beginning to look at everything and forgetting what the costs are and just start swiping it and saying, ‘hey, let’s make all these changes, it doesn’t matter what it does to education and these others,’" he said. "We’ve got to be responsible, but I do think we need to look at some of these things that help us to remain competitive."
The measure Tennille suggested was recommended in a 2002 report on economic development in Arkansas presented to the Legislature by Fluor Global Location Strategies of Greenville, S.C.
On Wednesday, lawmakers were presented with a six-page document showing that most of the Fluor report’s recommendations on a variety of economic development initiatives, including taxation, investments, incentives and rebates, have been implemented.
The committee, as well as the House and Senate committees on revenue and taxation, have been meeting regularly for months to review the state’s multi-layered tax structure and exemptions in anticipation of possible measures to reduce the state income tax next year.
Tennille told the panel he has been in a number of meetings with industry and manufacturing officials and was told that it would be cheaper to move elsewhere than to upgrade their facilities in Arkansas.
"Just in the time that I’ve been at the agency I’ve gotten pulled into the middle of some of these fights," he said, adding by subjecting the purchases to upgrade existing facilities to the state sales tax, "my contention is we are placing burden on this company."
"There is some bean counter sitting somewhere off from here who has a certain amount of money to make investments across a portfolio of operations in a number of different states … he’s going to make those investments where the dollar goes the furthest," Tennille said. "If they avoid investing in Arkansas because they don’t want to pay sales tax on the replacement widget, then ultimately that facility becomes less efficient. As it become less efficient, its profile in the company’s portfolio changes, it goes to being a swing plant, or it doesn’t get to start working on the new line of products."
Tennille said he has discussed the proposal with Gov. Mike Beebe. Stacey Hall, spokeswoman for the governor, said later Beebe’s top tax-cut priority remains eliminating the sales tax on groceries.
Also Wednesday, lawmakers discussed a recent study by the PEW Center on States that gave Arkansas high marks for state tax incentives for jobs and growth. Arkansas, in fact, was one of 13 states ranked in the top overall category, referred to as "leading the way."
One area which Arkansas and most other states were deficient, the report said, was in knowing whether they are getting a strong return for the incentives they give to businesses and corporations.
Tennille suggested an audit be conducted every 10 years or so to determine whether a tax incentive has been successful.
Lawmakers said they liked the idea but were concerned about how to gather data to improve future investments, rather than evaluation previous decisions.