Last year, Rep. John Payton, R-Wilburn, tried unsuccessfully to pass a bill raising the sales tax exemption for used cars to $7,500. House Bill 1342 of 2019 to raise the exemption passed the House with 84 out of 100. The bill died in Senate committee, largely because the measure would have cost an estimated $14 million annually in state tax collection. Rep. Payton’s District 64 includes portions of Baxter, Marion, Stone, Searcy and Cleburne counties.
Photo: Representative John Payton
Now, an effort to increase the sales tax exemption on used cars is underway through an initiated act.
Getting an initiated act on the ballot requires circulation of petitions. Only the signatures of registered voters count. The number of signatures must reach a total equal to at least 8% of the number of those who voted in the last governor’s election. That means 71,321 signatures for the 2020 ballot.
In addition, the petition signatures must come from around the state. Signatures from at least 15 of the state’s 75 counties are required. The number of signatures from each of those 15 counties has to equal or exceed 4% of that county’s total vote in the last governor’s race.
The Northwest Arkansas Democrat-Gazette is reporting the first $20,000 on the purchase of a used car would be exempt from sales tax under a proposal supporters hope to put on the Nov. 3 ballot. The proposal would also raise that $20,000 figure each year by the increase in the federal Consumer Price Index.
Under state law, the tax applies to any used passenger vehicle costing more than $4,000. The state sales tax of 6.5% plus any local sales taxes is due on the whole amount of a car costing more than $4,000. A car costing $4,000 or less is exempt.
Eric Harris of Springdale is the treasurer and a founder of Arkansans for Reduced Car Sales Taxes. Harris is also a former state representative who was a member of the House revenue and taxation committee.
Harris says the sales tax on used cars hits lower income car buyers the hardest.
The former dry cleaning business owner says he has had employees who have had have a transmission go out He says, “They faced the choice of putting another $2,000 into a car they should replace or buy a reliable car, and that would cost more than $4,000.”
There is support for raising the sales tax exemption in the Legislature, Harris and fellow initiated act supporter Rep. Laurie Rushing, R-Hot Springs, say. The big obstacle is the cut such an exemption would mean in state tax collection.
Harris says any tax cut draws a counter-argument: How are you going to replace the lost revenue? What service will be cut?
“Also, legislators who want to cut taxes have different priorities of which tax they want to cut,” he says. “This takes it out of their hands,” he says of the proposed initiated act.
The state Department of Finance and Administration has no estimate of the tax revenue loss of such a proposal, the department said earlier this month. The agency estimates the state would collect $22.6 million more in general revenue if the current $4,000 threshold wasn’t in effect, according to the statement.
Both Harris and Rushing say much of the expected lost revenue would be made up by sales taxes on other purchases.
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