Senate bill to transfer franchise tax duties advances

The state Senate Revenue and Taxation Committee on Monday advanced a bill that would reverse plans for transferring the administration and collection of franchise taxes from the secretary of state’s office to the state Department of Finance and Administration.

The committee recommended Senate approval of Senate Bill 525 by Sen. Bill Sample, R-Hot Springs.

The bill would undo Act 819 of 2019, which will transfer the franchise tax duties from Secretary of State John Thurston’s office to the finance department, effective May 1, the finance department said in its legislative impact statement on SB525.

The department said it began administering the tax four months early, on Jan. 1, to provide taxpayers with a seamless transition before the May 1 filing deadline, under a memorandum of understanding with the secretary of state’s office.

Some taxpayers had problems with the finance department’s tax filing system.

The finance department collected the tax through mid-March, department spokesman Scott Hardin said afterward.

However, splitting the franchise tax responsibilities between the department and secretary of state’s office created some unintended confusion for businesses, he said.

“While companies were required to utilize the Arkansas Taxpayer Access Point (ATAP) to pay franchise tax under DFA’s collection, this will not be the case as the Secretary of State’s office takes over collection,” Hardin said Monday.

Between Jan. 1 and March 12, 15,116 companies paid franchise taxes, he said afterward.

The deadline to pay franchise tax is May 1, and about 150,000 companies pay the tax each year, he said.

“There has been quite a bit of discussion, especially among folks that prepare the franchise tax returns, that the switch over to the [finance department] has been pretty burdensome and in a way just wasn’t ready for the ATAP system,” Sen. Jonathan Dismang, R-Searcy, said.

The bill would allow the secretary of state’s office to use its system for administering and collecting the state’s franchise taxes, he said.

“Hopefully, our filers will be able to get back to the more simplistic system and maybe not have some of those future phone calls,” Dismang said.

Sen. Mark Johnson, R-Ferndale, pressed Dismang about “Why we messed up?”

Dismang said that “in theory,” it was “a great idea” to transfer the tax duties to the finance department, so that one taxing authority is making the collections.

“The problem was … a system difference,” he said. “Someone could file with the secretary of state’s office a franchise tax, the information would autofill and you would be done filing your franchise tax for a single company in five minutes.

“Also, if you were a preparer, you could batch prepare. You just go in, and you verify the information in each one. It is pre-filled. Essentially, you could have filed 100 franchise tax reports in a matter of an hour or so,” Dismang said.

He said his understanding was that going through the Arkansas Taxpayer Access Point system could take at least 45 minutes to a few hours for people who weren’t experienced with it, and franchise tax preparation costs could exceed the actual cost of the taxes.

FOREIGN SALES

The Senate committee recommended approval of House Bill 1229 by Rep. Mary Bentley, R-Perryville, that would, among other things, bar an individual or entity “whose home of record is outside the United States” from buying tax-delinquent property certified to the state land commissioner’s office.

In the past four years, people from overseas have purchased property from the land commissioner’s office in 71 instances, said Kelly Boyd, chief deputy for Republican Land Commissioner Tommy Land.

“Some of them occurred at the physical auction in the county,” he said.

“The problem of that is we don’t have any way of notifying those people” if they quit paying the property taxes and the property becomes delinquent, Boyd said.

“We are going to codify the prohibition, so this bill will state that it is illegal for someone who has domiciled outside the United States, Alaska and Hawaii included, from purchasing property from us,” he said.

“If they do purchase it and we find out about it, then they forfeit that. It comes back to us. They forfeit the money they paid for it, and it goes back on the rolls, and we will sell it as tax-delinquent property again,” Boyd said.