United States

Arkansas enacts middle class tax relief bill

Reduces capital gains exemption percentage

TAX ALERT  | 

UPDATE: On April 7, 2015, Arkansas enacted HB 1402 without Gov. Hutchinson’s signature, amending changes to the state’s net capital gain exemption enacted earlier this year pursuant to SB 6. HB 1402 will gradually restore the 50 percent exemption by increasing the exemption to 45 percent for the period between February 2015 and July 2016, and 50 percent for all periods after July 1, 2016. Accordingly, pursuant to HB 1402, the following exemption percentages are applicable based on the date of the transaction:

From To Exemption Percentage
Jan. 1, 1999 Dec. 31, 2014 30%
Jan. 1, 2015 Jan. 31, 2015 50%
Feb. 1, 2015 June 30, 2016 45%
July 1, 2016   50%

Additionally, HB 1402 provides a 100 percent exemption for net capital gain in excess of $10 million from any gain realized on or after Jan. 1, 2014. Resident and nonresident individuals, trusts and estates should review the changes implemented by HB 1402 and consider the effects on current year taxes and their 2014 returns.


On Feb. 6, 2015, Arkansas enacted SB 6, the Middle Class Tax Relief Act of 2015, changing the income tax bracket thresholds applicable to individuals, trusts and estates for tax years beginning on or after Jan. 1, 2014. Additionally, for tax years beginning on or after Jan. 1, 2016, the Act reduces income tax rates for individuals, trusts and estates earning $75,000 or less, provides bracket adjustment for taxable net income between $75,000 and $80,000, and reduces the capital gains exemption percentage.

For tax years beginning on or after Jan. 1, 2014, and, for taxpayers with net income equal to or greater than $21,000, tax years beginning on or after Jan. 1, 2015, SB 6 shifts the applicable brackets and rates slightly. The income tax rates and brackets applicable to individuals, trusts and estates for the 2014 tax year for taxpayers with net income of less than $21,000 and for the 2015 tax year for taxpayers with net income equal to or greater than $21,000 are as follows:

From To Rate
$0 $4,299 0.9%
$4,300 $8,399 2.5%
$8,400 $12,599 3.5%
$12,600 $20,999 4.5%
$21,000 $35,099 6%
$35,100 7%

For tax years beginning on or after Jan. 1, 2016, SB 6 provides that the following brackets and rates are applicable to individuals, trusts and estates having net income of $21,000 or more but less than or equal to $75,000:

From To Rate
$0 $4,299 0.9%
$4,300 $8,399 2.5%
$8,400 $12,599 3.5%
$12,600 $20,999 4.5%
$21,000 $35,099 5%
$35,100 $75,000 6%

For tax years beginning on or after Jan. 1, 2016, SB 6 provides that the following brackets and rates are applicable to individuals, trusts and estates having net income in excess of $75,000:

From To Rate
$0 $4,299 0.9%
$4,300 $8,399 2.5%
$8,400 $12,599 3.5%
$12,600 $20,999 4.5%
$21,000 $35,099 6%
$35,100 6.9%

For tax years beginning on or after Jan. 1, 2016, SB 6 provides that an individual, trust or estate having net income of more than $75,000, but not more than $80,000, will be entitled to the following bracket adjustment:

From To Bracket Adjustment Amount
$75,001 $76,000 $440
$76,001 $77,000 $340
$77,001 $78,000 $240
$78,001 $79,000 $140
$79,001 $80,000 $40
$80,001 $0

All bracket thresholds are subject to automatic annual adjustment.

Legislation from last year changed the net capital gain exemption rate from 30 percent to 50 percent for tax years 2015 and after.  To partially offset the revenue reductions expected to result from  the changes made to the  applicable brackets and rates by SB 6, the bill provides that the net capital gain exemption will be reduced to 40 percent for transactions occurring  on or after Feb. 1, 2015. Accordingly, pursuant to SB 6, the following exemption percentages are applicable based on the date of the transaction:

From To Exemption Percentage
Jan. 1, 1999 Dec. 31, 2014 30%
Jan. 1, 2015 Jan. 31, 2015 50%
Feb. 1, 2015 40%

Resident and nonresident individuals, trusts and estates should review the changes implemented by SB 6 and consider the effects on estimated payments and cash taxes.

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