With Tax Break, Arkansas Mounts Campaign to Lure, Retain Veterans

Rob Ator, director of military affairs at the Arkansas Economic Development Commission, and Mike Kirby, owner of Made in the Shade Little Rock

“Operation Tax Break” is underway.

An Arkansas law exempting military retirement and survivor benefits from the state income tax took effect on Jan. 1. Act 141, estimated to cost $13.4 million a year, is an effort to make the state more military friendly by encouraging retirees to join the workforce or start businesses of their own.

“The whole idea behind it is that we want to try our best to retain the talent that’s here in the state of Arkansas and keep them here,” said Rob Ator, military affairs director for the Arkansas Economic Development Commission. 

The law was introduced as House Bill 162 sponsored by Rep. Charlene Fite, R-Van Buren.

Ator, a retired Air Force colonel who commanded the 189th Airlift Wing at Little Rock Air Force Base, said the bill passed after at least two failed attempts for a handful of reasons. It had the support of Gov. Asa Hutchinson, offsets were found and supporters cast it as an economic incentive and not “a handout or thank you for veterans serving their country.”

In a signing statement last February, Hutchinson said, “I am confident that adding these highly skilled and educated veterans to our workforce will spur economic development and benefit all Arkansans.”

Military members can retire after 20 years and collect pensions amounting to as much as 50 percent of their final salary for the rest of their lives. Since many join the military in their late teens or early 20s, they leave the service in their late 30s and early 40s with plenty of years to devote to a second career.

Retired Air Force colonel and Little Rock business owner Mike Kirby has done just that.

“Yes you are getting a good military retirement, but it’s tough to go without a full salary, living as you were without having another job,” Kirby said. “And you have so much energy.”

Kirby — former commander of the 19th Operations Group, 19th Airlift Wing, at Little Rock — is co-owner of Made in the Shade Blinds and More, a custom window coverings business he started with local resident Ron Carter last year.

Kirby spent 17 of his 26 military years in Texas and said he was drawn to Arkansas because of community and business leadership and the state’s natural beauty. The passage of Act 141, he said, was “icing on the cake.”

For retirees, a state with a tax break on retirement pay offers a welcoming place to work and set up shop. For Arkansas, retirees represent a talented workforce to bring into a business-friendly, financially stable state.

“I think that your military folks, it’s ingrained that we continue to improve ourselves and we’re on an accelerated path,” Kirby said.

Many military members have a college degree on top of their technical and advanced military training. Air Force officers are required to have bachelors degrees, but Ator estimated that at his last command 60 percent had masters degrees. Among the enlisted ranks he guessed 80 percent had an associates degree, 40 had a bachelors and 20 had a masters. 

While Act 141’s impact remains to be seen, the AEDC noted surrounding states had seen a 1 percent increase of service members retiring with pay, which “anecdotally” translates to 250 families who could relocate annually to Arkansas.

Act 141 also reduced the state’s special excise tax on soft drink syrup whose revenues support the state Medicaid program. Hutchinson said that tax was intended to be temporary.

Offsets for tax revenue and transfers to Medicaid include repealing an income tax exemption on unemployment compensation, ending the classification of candy and soft drinks as groceries (for a sales tax increase from 1.5 to 6.5 percent) and a sales tax levy on digital downloads of movies, books and ringtones.

Ator said if ACT 141 succeeds as intended, there will also be plenty of new workers and business owners in the state representing new tax revenues. Ator said a marketing effort that includes a website is being developed, and added that Arkansas also wants to attract new defense industries.

“We want to have military in our workforce when those companies come to our state looking to relocate,” Ator said.