Department of Finance and Administration
Legislative Impact Statement
Bill: HB1491
Bill Subtitle: TO REQUIRE THE DEPARTMENT OF FINANCE AND ADMINISTRATION TO ADOPT
RULES BEFORE ASSESSING OR COLLECTING CERTAIN TAXES.
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Basic Change :
Sponsors:
Reps. Cavenaugh, Barker, Richmond, Milligan, Wardlaw, Eubanks, Ray, Beaty Jr., G. Hodges,
Hollowell, Cozart, M. Berry, Fortner, J. Moore, Lundstrum, J. Mayberry, Gonzales, Schulz, and
Lynch
Sens. B. Johnson, J. Dotson, J. Boyd, and Gilmore
HB1491 amends the Arkansas Tax Procedure Act, § 26-18-101, et seq to prohibit the Department of
Finance and Administration (DFA) from assessing or collecting a tax on an item or service that DFA
has not previously assessed or collected on the item or service unless there has been a change in the
statutory law that requires the assessment and collection of the tax on the item or service. If DFA
determines that it has failed to assess or collect a tax on an item or service that, based on the DFA’s
interpretation, is authorized by law, DFA shall promulgate by rule to clarify the application of the tax to
the item or service. DFA shall not assess or collect a tax on an item or service that is subject to a rule
promulgated under the requirements of HB1491 unless the rule has been approved under § 10-3-309.
Revenue Impact :
Revenue impact is unknown.
Taxpayer Impact :
It is unclear what effect HB1491 would have upon a taxpayer’s obligations to collect, remit, or pay a tax
levied by the Arkansas General Assembly. DFA could not assess a taxpayer under audit or have tax
collected on sales of items or services that have not previously been collected or assessed unless a
statutory law change occurs requiring assessment or collection of the tax or DFA promulgates a rule
under the Administrative Procedures Act. New types of goods and services may not be subject to
taxation in Arkansas until the Legislative Council or Joint Budget Committee have approved DFA rules
governing the taxation of those new goods and services.
Resources Required :
DFA would require additional staff to ensure compliance amongst the 100 auditors it employs across
the State to continually review all audits conducted. DFA would require additional staff of one Assistant
Administrator, one Managing Attorney, one Attorney Specialist, one Senior Auditor, and five Fiscal
Support Analysts to ensure legal uniformity, and draft and promulgate additional rules, at an additional
approximate salary cost of $460,000.
The Arkansas Integrated Revenue System (AIRS) system will need to be programmed to
accommodate this change. Requirements gathering, development, testing, and training will cost an
estimated $40,000. Yearly maintenance is estimated to cost $12,000.
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 Department of Finance and Administration
Legislative Impact Statement
Bill: HB1491
Bill Subtitle: TO REQUIRE THE DEPARTMENT OF FINANCE AND ADMINISTRATION TO ADOPT
RULES BEFORE ASSESSING OR COLLECTING CERTAIN TAXES.
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Time Required :
Unknown at this time.
Procedural Changes :
Department employees will need to be educated as well as the tax community.
Other Comments :
HB1491 may be interpreted by individuals to prevent DFA from any non-filer assessment or audits of
taxpayers since the items or services technically may not be considered to have been previously taxed
by DFA if individual taxpayers fail to report them as required by law even if other taxpayers report and
pay tax for the same items or services.
DFA is often unaware of a taxpayer's noncompliance with the tax law until such time as an audit is
performed uncovering the taxpayer's interpretation of the law which might be different from the audit
staff. Final determinations may be made during the protest process or in court regarding the correct
application of the tax being assessed. HB1491 could unintentionally incentivize taxpayers to not
voluntarily report tax on items or services which are taxable under the law if no rule exists since
HB1491 may create an additional defense against any potential audit findings even though the General
Assembly has previously levied a tax.
HB1491 may be intended to only address the assessment and collection of gross receipts tax (sales
tax) and other excise taxes but does not clearly specify and therefore may include income taxes or
other taxes as written. Businesses create hundreds of new products and services each year. Requiring
DFA to create rules concerning the taxation of each product or service classification would require
additional staff members to identify, classify and propose rules that would have to be legislatively
approved before sales of those goods and services could be taxed. This would result in sales of new
goods and services being sold without collection of the tax until rules were implemented. Businesses
would have to separate their sales between goods and services that are currently taxable from those
that are not and monitor DFA constantly to look for changes in the status from non-taxable to taxable
once rules were in place.
Legal Analysis :
Transactions involving goods or services are subject to tax based on the Arkansas Code that existed at
the time of the transaction. For example, all sales of tangible personal property and certain enumerated
services are subject to sales tax unless otherwise exempt. DFA administers the laws passed by the
General Assembly and has no authority to make the sale of an item or service taxable through
promulgation of a rule.
It is unclear if HB1491 is intended to exempt from tax all purchases of new tangible personal property.
The bill states that DFA may not "assess or collect a tax on an item . . . that the department has not
previously assessed or collected on the item[.]" A new item, by its very nature, has not been sold
before and therefore would not be subject to assessment or collection. It appears likely that HB1491 is
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 Department of Finance and Administration
Legislative Impact Statement
Bill: HB1491
Bill Subtitle: TO REQUIRE THE DEPARTMENT OF FINANCE AND ADMINISTRATION TO ADOPT
RULES BEFORE ASSESSING OR COLLECTING CERTAIN TAXES.
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not meant to exempt from sales tax all purchases of new tangible personal property.
Instead, HB1491 possibly attempts to prevent DFA from assessing or collecting tax on the sale of an
item or service unless DFA has in other scenarios assessed or collected taxes on transactions
involving the same type of item or service. DFA will have difficulty complying with that requirement
because information is not available or accessible to determine compliance with the law. There is not a
searchable database of all transactions involving a particular item or service on which DFA has
assessed tax. Further, DFA is typically unaware of the contents of transactions upon which it collects
tax. Taxpayers with sales tax permits remit taxes to DFA but do not provide itemized lists of items or
services they sold.
It is unclear if HB1491 provides a defense to the assessment of tax on a transaction. It seems that a
taxpayer could sue DFA to protest an assessment based on the allegation that DFA has not previously
assessed or collected tax on a type of item or service. To disprove that allegation, DFA would need to
release the information of other taxpayers that have previously been assessed for transactions
involving the same type of item or service. Disclosing confidential information regarding other
taxpayers is prohibited under Arkansas law and would violate the privacy of the other taxpayer. In
addition, disclosing confidential taxpayer information subjects the DFA employee defending the
assessment to potential criminal liability or termination under § 26-18-303.
HB1491 may encourage individuals to conceal transactions involving items or services that might be
taxable because taxpayers will believe that if they can emerge from one audit without a transaction
being assessed as taxable, then similar transactions in the future will be tax free until DFA promulgates
a rule clarifying the taxability of that type of transaction.
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