Arkansas Lowers Tax Rates to Attract Military Families

Arkansas Lowers Tax Rates to Attract Military Families
Arkansas Gov. Asa Hutchinson greets soldiers at a local event. State leaders want to encourage troops and their families to consider making Arkansas their permanent home. (Courtesy Gov. Asa Hutchinson)

By Richard Duke


Arkansas Gov. Asa Hutchinson says “the welcome mat is out” for servicemembers and veterans and their families.


During his first term, Hutchinson's efforts to attract military families to his state have included two income tax rate reductions; he put full exemption of uniformed services retirement pay and Survivor Benefit Plan annuities at the top of his 2017 legislative tax package. Arkansas joins 28 other states that provide full state tax exemptions to military retirees and survivors; 19 others provide partial exemptions.


This is just the latest advance capping several years of ongoing efforts by MOAA chapter leaders and others to make the state more veteran-friendly. In 2015, the state enacted the broadest higher education in-state tuition eligibility in the nation. Through that initiative, all members of the armed forces and their spouses and veterans within three years of their discharge and their family members are eligible for in-state tuition at Arkansas public higher education institutions - regardless of where they live and their official residence. The state also has adopted a strong occupational licensure statute on behalf of members of the armed forces, veterans, and military spouses. And in 2013, Arkansas exempted active duty pay from state taxation - giving active duty Arkansans a reason to keep their state residency.



Combined, these initiatives secure state and community investments made in the education of servicemembers before they joined the military, strengthen readiness and recruiting, complement DoD's education and training investment, and position the state - whose longtime motto was “the land of opportunity” - to attract more military families to discover or return to Arkansas.


“When you're looking at a 6.9-percent income tax rate, that's a very significant benefit,” Hutchinson says. “[Military retirees] will come here to start a second career and will fall in love with the state. That is another incredible incentive.”


State Legislators Key to Success


While the military retirement tax exemption was well-received by the legislature, the governor says there were hurdles. “Anytime you take revenue off the table, you have to figure out a way to make that up,” he says.


Arkansas has a constitutional amendment requiring a balanced budget. No action that results in the elimination of any tax revenue can move forward without concessions being made somewhere else. There wasn't room in the budget for past partial exemptions, but Hutchinson's 2017 revenue-neutral tax proposal provided budget space for the full military retired pay exemption.


Having champions in the state legislature is a key to success. Arkansas State Sen. Jane English - a former military spouse and MOAA Central Arkansas Chapter stalwart - crafted bills partially exempting retired pay in 2009, 2011, and 2013. In 2013, she also cosponsored the active duty pay exemption bill and was the lead Senate sponsor of the successful 2017 retirement pay exemption bill. Lead House sponsor Rep. Charlene Fite's son-in-law is a retired Air Force pilot. Together, English and Fite have been instrumental leading many state-instituted military and veteran family initiatives.


Arkansas is a leader in a national effort to reform occupational licensure as one of 11 states - and the only southern state - chosen as a member of a consortium led by the National Council of State Legislators/National Governors Association/Council of State Governments. The objective of this national effort is to identify and eliminate burdensome barriers to occupational licensure and its portability across state lines. A major focus of the effort addresses challenges veterans and military spouses face.  


Out-of-State Inspiration


Annie Brock, legislative liaison for MOAA's Maryland Council of Chapters, is buoyed by the recent success in Arkansas as well as other incentives the state has included to appeal to military families. Maryland has been chipping away at state taxation of military retired pay for decades and made significant progress this year, approving a $15,000 exemption for military members 55 years and older and $5,000 for all others.


Brock knows presenting personal anecdotes can help make the case. “For military retirees to attempt to come to Annapolis, I knew that would be extremely tough,” she says. “We conducted a major email campaign with more than 4,000 signatures. We had a 94-year-old veteran specifically ask us to teach him how to use a computer so he could send an email to join this campaign.” Next year, she says, “we're going for 100 percent.”


While anecdotes certainly can sway an audience, the economic impact and workforce reinforcement of military-friendly state policies also can be effective incentives. According to DoD, the 2016 economic impact on Central Arkansas of Little Rock AFB was $469 million, while the DoD Office of the Actuary reports the economic impact of military retirees across the entire state was $817 million in 2016. An economic impact analysis commissioned by the state of Arkansas identified the overall defense industry impact at $4.5 billion.


Col. Don Berry, USAF (Ret), legislative chair for MOAA's Arkansas Council of Chapters, says, “While the base affects the six counties around Little Rock, the broader military retiree economic impact is felt by community businesses and in deposits to main street banks in all 75 Arkansas counties.” Attracting former military families grows Arkansas' workforce, expands small business opportunities, and brings in investment capital to fuel local economies.  


“The Arkansas Veterans Coalition, of which the Arkansas Council of Chapters is a member, has been successful in advocating for programs that raise the financial well-being and quality of life for current and former service families,” Berry adds. “By ensuring our initiatives track with the Arkansas Strategic Plan objectives - strengthening the Arkansas economy by growing jobs, reinforcing our skilled workforce, and improving educational opportunities - we stay in step with the governor's plan. By then working with the legislature on those initiatives, we not only make Arkansas more military friendly, we strengthen Arkansas for all Arkansans."


“We want military retirees here in Arkansas,” Hutchinson says, “and we're taking steps to make sure they and their families know that Arkansas is the place for them.” 

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