The following general tax administration changes were made by the General Assembly in 2019. While most of the changes were relatively minor technical adjustments, the consolidation of franchise tax administration and the Assessment Coordination Department into the Department of Finance and Administration will have long-term significance, as will the biennial tax preference reviews beginning 2021-2022 ahead of the 2023 legislative session.
Act 673 revises the amounts of fees that may be collected by the Commissioner of State Lands by striking a set fee schedule and authorizing the Commissioner to set adequate rates, fees and charges to reimburse the actual cost incurred by the Commissioner in carrying out the established duties and authority of the office.
Act 760 provides that a taxpayer's bankruptcy filing tolls the 10-year limitations period on collection actions for assessed taxes, until 180 days after the bankruptcy case is terminated. Effective for tax years (and presumably periods) beginning on or after January 1, 2020.
Act 819 is a tax reform bill that focuses on tax administration. Among its provisions, it will require DFA to prepare a biennial report about the impact of each income tax or sales and use tax exemption, discount, credit, and deduction. It would be effective May 1, 2021, which indicates that the first report will be due ahead of the 2023 legislative session. Expect this ongoing process to create additional scrutiny for special, industry-specific credits, exemptions, or other tax benefits.
Act 850 allows DFA to hold hearings electronically if the DFA determines that doing so is in the best interests of the taxpayer and DFA. While intended to address a problem where taxpayers were using the right to an in-person hearing as leverage in small-dollar cases, DFA's unqualified discretion could lead to taxpayers in outlying regions face the choice of coming to Little Rock or else having an electronic hearing. Effective January 1, 2020.
Act 863 clarifies the application of the statute of limitations for amended returns generally and also with respect to federal income tax adjustments. Amended returns must be filed within three years from the time the return was filed or two years from the time the tax was paid, whichever expires later. Effective for tax years beginning on or after January 1, 2019.
Act 864 authorizes DFA to publish electronically all certificates of indebtedness (tax liens). DFA's stated purpose for doing so is because some Arkansas counties do not provide electronically searchable databases of lien filings. This may effectively result in a "name and shame" approach to tax enforcement, as tax delinquency information will become more conveniently available to interested parties.
Act 866 requires the Revenue Division of the Department of Finance and Administration to provide notice to the Office of State Procurement regarding all final business closure orders against a contractor for failure to report or remit applicable taxes to the Department and requires the Office of State Procurement to notify each state agency regarding the same in order to cease the provision of all goods or services provided by such contractor and refrain from awarding contracts to such contractor. Effective January 1, 2020.
Act 910, the Transformation and Efficiencies Act of 2019, was a large bill reorganizing state government and affecting most all state agencies. DFA will be one of the surviving 15 cabinet-level agencies. ACD will become a part of DFA. And under Act 819, DFA is also picking up administration of franchise tax. DFA thus will become involved in almost all areas of Arkansas tax administration. This will likely make senior DFA decision makers all the more important for taxpayers.
In addition, this reform is intended to create efficiencies, the savings from which can pay for future tax cuts and reforms. While no one is losing their job immediately, expect the administration to use retirements and departures as opportunities to consolidate positions, in addition to savings from shared infrastructure and services.
SB560 would have replaced DFA's Office of Hearings and Appeals with an independent tax commission. The proposal passed the Senate but did not pass the House. It has been referred for interim study and may well come up again in the 2021 legislative session.