State panel looks at ending soda tax

A House committee is weighing a bill backed by Gov. Asa Hutchinson that would phase out the state's soft drink tax by 2025 and make up the loss of it as a source for the state's Medicaid trust fund by using general revenue.

Rep. Joe Jett, R-Success, chairman of the House Revenue and Taxation Committee, Tuesday delayed the panel's vote on House Bill 1546 by Rep. Lanny Fite, R-Benton, after a hearing that lasted an hour and a half.

"Let everybody know that we are not trying to do this in a dark room behind an alley someplace," Jett said at the end of the committee's meeting. "We are trying to operate in a fair, an open and honest manner.

"I think I heard somebody reference a while ago that corporate America is cramming this down this committee's throat and I assure everybody that that's not taking place or we would have took the vote today and it would have come out of committee today," he said.

The backers of the bill include the ARBEV soft drink industry lobby, Coca-Cola Consolidated, and the Arkansas Grocers and Retail Merchants Association.

The bill's foes include the Arkansas Hospital Association, the Arkansas Medical Society, the Arkansas Health Care Association and the Arkansas Pharmacists Association.

The Medicaid trust fund helps pay for health care for poor people.

WHAT WOULD CHANGE

The tax is levied on the sale of soft drink syrup or simple syrup at the rate of $1.26 per gallon, and bottled soft drinks, powders and base products at the rate of 20.6 cents per gallon that may be produced, the state Department of Finance and Administration said in its legislative impact statement on the bill.

Distributors, manufacturers and wholesalers are required to collect the tax.

HB1546 would provide a mechanism to transfer state general revenue to the Medicaid trust fund in amounts that reflect the projected fiscal impact from the three-year reduction and elimination of the soft drink tax, the finance department said.

The soft drink tax rates would be reduced on Jan. 1 in 2023, 2024 and 2025.

The general revenue transfers would be $4.1 million in fiscal 2023, $16 million in fiscal 2024, $30.8 million in fiscal 2025 and $39.4 million in fiscal 2026 and each subsequent fiscal year, according to the finance department. Fiscal years start July 1.

The bill would require a two-thirds vote of the House and the Senate because it would reduce and ultimately repeal a state law -- Act 7 of the 2nd Extraordinary Session of 1992 -- that was confirmed by a referendum vote in the 1994 general election, the finance department said.

"It started out as a temporary tax and it was supposed to last about three years, and 28 years later the tax is still on," Fite told the House tax committee.

An earlier cut in the soft drink tax was in Act 141 of 2017, which also exempted military retirement benefits from income taxes, said Paul Gehring, an assistant revenue commissioner for the finance department.

The 2017 law also authorized the transfer of $3 million in general revenue to the Medicaid trust fund in fiscal 2018 to offset the reduction and $5.9 million in fiscal 2019 and each subsequent fiscal year, according to the finance department.