Tax Strategy: Take 2 (Jeff Hankins Publisher's Note)

Response poured into my e-mail box after the last column about the failed Fidelity National Financial Corp. recruitment and the state's precarious tax situation.

In a nutshell, the column outlined Alltel Corp. CEO Scott Ford's explanation of how we lost to Florida on the relocation of Fidelity's headquarters from California mostly because of our state income tax. Further, I outlined the predicament we face lacking a big-picture tax strategy that will keep us competitive in economic development while meeting needs for education and infrastructure.

Let me share some of the comments:

• "It's about time someone said it."

• "The near-term is bleak and the long-term isn't any better. Even the wealth that originated here is leaving the state. I have several clients that have changed their residency just to avoid the state's tax rates. A major overhaul of the Legislature will have to occur to stop the bleeding."

• "This is exactly the topic that I have as a major component of my campaign for the state House of Representatives," said Mark Martin, a candidate for District 87 in northwest Arkansas.

• "Many of us would like some reasonable answers. Common sense says that the state needs some future tax planning."

• "Next time you talk to Scott [Ford], beg him not to sell Alltel. When that happens, residential real estate here will get nice and cheap."

• "We were chastised by some for increasing the so-called corporate welfare of Arkansas businesses. Yet most never seem to understand the whole issue. If you're not competitive, most companies won't locate or expand here. Those tax dollars that many see as the 'giveaway' aren't generated due to the jobs being located in another state."

• "We can only hope our Legislature will listen and change their ways."

Differing Views

Then there are the contrarians:

• "You fail to mention that both Florida and Texas have higher tax rates overall. Texas has much higher property taxes and as does Florida. ... Keep telling the lies and ignoring the truth. One day the truth will bite you in the ..."

• "Every academic study I've ever seen generally says taxes are never better than a factor, not a deciding one, in business locations along with the usual lineup of resources, work force, location, access to clients, etc.," says Max Brantley, the editor of the Arkansas Times.

Brantley points out that the state income tax isn't as onerous as it looks, at a rate of 7 percent for income. Because of typical deductions plus the deductibility for federal income tax calculations, the net effect is actually in the 3-4 percent range for higher incomes.

According to information from the state Department of Finance and Administration and the U.S. Census Bureau, in 2000 Arkansans paid 10.6 percent of their personal income for state and local taxes — that's sales, property and income taxes combined. That ranked No. 36 in the country, ahead of Florida at No. 45 with 9.9 percent and Texas at No. 46 with 9.7 percent.

Arkansas ranked No. 46 in property taxes, No. 8 in sales tax and No. 31 in income taxes. That was before the newly enacted 7/8 cent sales tax. Now it's estimated that Arkansas would rank No. 4 in the country for state and local sales taxes as a percent of personal income and ninth on a per-capita basis.

We love to talk about how Texas and Florida have much higher property taxes than Arkansas and how that helps us. If you combine per-capita property and income taxes, the total is $911 in Arkansas, $950 in Texas and $880 in Florida. We are competitive in that regard, but now we have vaulted ahead of Florida and Texas in per-capita sales tax.

This dialogue on strategic and competitive tax strategy must continue, especially considering we're still not out of the woods with the state Supreme Court and the Lake View School District case ruling.

(Jeff Hankins can be reached via email at jhankins@abpg.com.)

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