Arkansas lawmakers to consider increasing homestead tax credit
The Arkansas Legislature is poised to increase the state’s homestead tax credit; the question: How much?
House Bill 1032 by Rep. Lanny Fite (R-Benton) would increase the Homestead Property Tax Credit from $375 a year to $425 in 2024.
Fite explained his bill last week to the House Revenue and Tax Committee, but he plans to wait to ask for a vote on the bill until after Gov. Sarah Huckabee Sanders’ office reviews it.
Fite said Thursday that the governor’s office might suggest increasing the tax credit even more if revenue projections allow. He said in an interview that expects to have a clearer idea of what the final bill will look like and when it will run next week.
The state continues to collect more money for the credit than taxpayers claim, Fite said, and he noted that rising property values means tax bills will also be increasing.
State budget officials project that increasing the Homestead Tax Credit by $50 would cost the state about $34 million in 2024.
“It’s fairly simple,” he said. “We have the money.”
Fite’s bill is one of a number of tax-cutting proposals the Legislature expects to consider this year. Another bill has been filed to increase the standard deduction on state income taxes, for example. House Revenue and Tax Committee Chairman Rep. Les Eaves (R-Searcy) said last week that the committee would likely meet at some point to prioritize what kinds of tax relief it wanted to enact this session.
As for Sanders, Communications Director Alexa Henning said the new governor was working to maximize relief for taxpayers.
“Governor Sanders is working with Rep. Lanny Fite on the House Revenue and Taxation Committee to get as much relief as possible for Arkansas homeowners who are struggling because of President Biden’s disastrous economic policies that have caused record inflation and placed a burden on Arkansans,” she said.
The Homestead Tax Credit is funded by a half-cent sales tax collected throughout the state. Since 2020, the state has increasingly collected more revenue from the dedicated sales tax than the value of credits claimed by homeowners.
Last year for example, Arkansas collected $356.4 million from the half-cent sales tax, but property owners only claimed $246.7 million in homestead tax credits, according to the Arkansas Department of Finance and Administration. Roughly 711,330 Arkansans claimed the credits, data show.
The surplus is deposited into a separate account that can be used for other purposes at the state Legislature’s discretion.
The Homestead Tax Credit was last raised in 2019, from $350 per parcel to $375.
The tax credit reduces property owners’ real- property tax liability, and it can be claimed through a property owner’s county assessor’s office.
According to the Arkansas Assessment Coordination Division, “the credit is applicable to the ‘homestead’, which is defined as the dwelling of a person used as their principal place of residence… A homeowner is defined as someone who is the record owner of the property, a buyer under a recorded sales contract or a person holding a recorded life estate in the property.”
Rising property values
Property values have seen sharp increases since the start of the COVID-19 pandemic.
Of the 17 counties that reappraised property values last cycle, Fite said all saw average property values increase by more than 10%.
“This will help offset that,” Fite said.
In Washington County, valuations skyrocketed.
“The average property owner in Arkansas saw a 49% increase in their property values,” said Washington County Assessor Russell Hill.
Under Amendment 79 to the Arkansas Constitution, however, the taxable value of a homestead property can only increase a maximum of 5% per year.