The critical role of property taxes in Arkansas and why we should leave them alone
By Lindsey French
AAC Litigation Counsel
Let’s be honest: no one likes taxes. No one wants to pay taxes. Taxpayers hold a particular disdain for property taxes because you must pay taxes on real and personal property you own every year. But it’s important to look at what property taxes actually fund in Arkansas and how much in property taxes Arkansans pay compared with taxpayers in other states.
First, there is no state property tax in Arkansas. Property taxes are levied by local school districts and approved by the quorum court. Seventy-nine percent of property taxes paid go to fund Arkansas’ public schools, 13 percent of property taxes collected go to counties, 7 percent to municipalities, and 1 percent to other entities. For school districts, there is a minimum uniform rate of taxation (URT) of 25 mills set by state constitution and statute (Ark. Const. Article 14, §3; Ark. Code Ann. § 26-80-101), but any millage over that must be voted on by local taxpayers (Ark. Const. Article 14, §3; Ark. Code Ann. §26-80-102). In 2021, the statewide average millage rate was 38.48, only 65.7 percent of which is covered by the URT. This is important because, pursuant to Ark. Code Ann. §6-20-2305, if a school district’s net property tax revenues collected are less than 98 percent of the URT, the Department of Education shall distribute to the school district the difference between 98 percent of the URT and what was actually collected. However, the state is not required to supplement any revenues not collected in excess of the URT (25 mills).
Actual millage rates for school districts vary from around 28 mills to 48 mills, with the statewide average millage around 38.5 mills in 2021. The total taxable property value for all real, personal, minerals, and utility property in Arkansas in 2021 was $57,213,455,655. In each school district, the total taxable property assessments are multiplied by its levied millage rate (times 0.01) to determine the actual assessed value of property in the district. In 2021, the statewide average collection rate for school districts was 95.73 percent. In the same year, about $2.09 billion in property taxes were collected for school districts statewide. Comparatively, for the State’s Fiscal Year 2021, $2.28 billion in state general revenues were expended by the Department of Education Elementary and Secondary Education Division.
That is a lot of numbers and information, but I promise there’s a point. While property taxes are not loved by anyone and detested by many, property taxes in Arkansas are necessary for the secure and stable funding of our public school system. The current administration has worked with the General Assembly to responsibly lower income taxes for Arkansans, and Governor-hopeful Sarah Huckabee-Sanders has said she will take those cuts even further if elected. Elementary and secondary education is already a huge chunk out of the state’s general revenues, in fact it is one of the state’s greatest annual expenditures. If Arkansas begins to move toward no income tax, property taxes will be more important than ever for the funding of our public schools. With the state already supplementing public school funding by over $2 billion per year, it is easy to conclude that property taxes alone, as currently administered and assessed, are not enough to fund the schools.
Article 16, §5 of the Arkansas Constitution mandates that all real and personal property subject to taxation shall be taxed. It gives the General Assembly the latitude to amend the methodology of assessment by a three-fourths vote of each chamber. Additionally, it sets forth the property that is exempt from taxation. In recent legislative sessions, there have been bills presented that would reduce and eventually eliminate personal property taxes in Arkansas. Personal property tax assessments make up nearly one-quarter of the total property taxes assessed in Arkansas. The state’s public schools certainly cannot afford to lose half a billion in property tax dollars without some way to make up for it — and it doesn’t look like greater supplementation from state general revenues is a popular option.
Furthermore, Arkansas has one of the lowest real property taxes in the country. According to a 2021 publication by the Tax Foundation, Arkansas homeowners pay a smaller percentage of their home’s value in property taxes than in
38 other states. In contrast, according to the same organization, Arkansas has the third highest average sales tax rate of any state in the nation. An approved measure to provide property tax relief to Arkansans, Amendment 79, passed by a vote of the people in the 2000 general election, and placed caps on how much real property can increase after a reappraisal, with a 10 percent cap on all real property and a 5 percent cap on all homesteads. Additionally, Amendment 79 gives a tax break to homeowners age 65 and older or who are disabled by freezing their home’s value for ad valorem tax purposes, preventing any increases in their home’s assessed value. The amendment also created a homestead tax credit for homeowners that was increased by the General Assembly to $375 in 2019. Also, farmers are provided property tax relief by Amendment 59, passed in 1980, which requires agricultural, pasture, and timber land to be assessed according to its use and production, rather than its true market value like all other property is assessed. This results in these lands being assessed at a much lower value than its market worth.
In conclusion, it is not surprising that property taxes are unpopular. It is the only tax that most Arkansas taxpayers have to sit down once (or in three installment payments) a year and write a check for all taxes due for the year. Most people have their income taxes withdrawn from their paycheck throughout the year to lessen the blow, and sales taxes are paid a little bit at a time every day. No one likes to go get their vehicle license renewed and be told they have to pay their property taxes, all of them, first. However, the role that property taxes play in Arkansas cannot be underemphasized. If the goal is to draw more people and businesses to our state, few things are as important a recruiting tool as a great public school system, and adequate funding is crucial for us to achieve and maintain that goal. In the upcoming conversations about tax reductions in Arkansas, we cannot forget that personal and real property taxes serve a critical purpose that benefits all Arkansans and should not be diminished.