In next month’s special session of the Arkansas Legislature, Gov. Asa Hutchinson and lawmakers say they will try to provide tax relief for Arkansans struggling with inflation.
One item on the agenda will be making changes to a tax deduction known as Section 179, which is used by businesses to help pay for equipment. Lawmakers want the state’s deduction rate to match the federal government’s.
Currently, Arkansas provides a deduction of up to $25,000 for equipment costing up to $200,000 with a phase out beginning after that point. Scott Hardin, director of communications for the Department of Finance and Administration, said the amount deducted is also determined based on the taxable income of the business.
The federal rate allows a maximum deduction of up to $1 million with a phase out beginning at $2.5 million, according to the Internal Revenue Service (IRS). In 2017, the federal government increased the amount of the deduction as part of the Tax Cuts and Jobs Act, which was signed into law by former President Donald Trump and approved by all of Arkansas’ congressional delegation. After 2018, the deductible amounts started being indexed to inflation.
In a letter to Hutchinson, the Agricultural Council of Arkansas, Arkansas Farm Bureau, the Arkansas Forestry Association, the Arkansas Timber Producer Association, Riceland, Arkansas Rice, Arkansas Rice Producers, the Poultry Federal and the Farm Credit Association of Arkansas – urged the governor to adopt the change in the tax code.
“This change in tax policy would provide immediate relief to Arkansas farms and small to medium sized businesses facing rapid increases in input costs. It would also provide economic stimulus to counter recessionary pressures from Federal Reserve policy and inflation,” the letter said.
Hunter Biram, economist for the University of Arkansas Division of Agriculture, said the changes could provide immediate tax relief for farmers since Section 179 allows businesses to use the deduction the year the equipment is bought rather than of over the number of years the equipment is expected to be used.
“Increasing that to match the federal could create an incentive there, but it doesn’t guarantee farmers will take advantage of it,” Biram said. “The incentive is there, but I know producers aren’t thinking about buying equipment. I doubt they’re thinking of buying equipment, but if the incentive is there, they might consider it.”
He says rising fuel costs are the biggest challenge for farmers, since it increases the cost of irrigation.
Hardin says adopting the federal government tax deductions for equipment is estimated to cost the state about $29.4 million dollars in the current fiscal year, which began last month and $24.8 million in fiscal year 2024.
