Tax exemption’s sponsor not concerned about legal challenge

LITTLE ROCK — A state senator who sponsored a tax break that is the subject of a legal challenge said Tuesday he stands by the procedure the Legislature used to pass the measure.

During this year’s fiscal session, Sen. Jonathan Dismang, R-Beebe, proposed language that was added to an appropriations bill stating that sand and other proppants used in oil and gas drilling is exempt from the state sales tax. On Monday, Pulaski County resident Robert Nunn filed a lawsuit alleging that the tax break is unconstitutional because of the way the Legislature approved it.

The constitutional amendment that allows the Legislature to meet in even-numbered years for fiscal sessions requires a vote of at least two-thirds of the membership of each chamber to consider a non-appropriations bill. The lawsuit Nunn filed in Pulaski County Circuit Court alleges that the sand tax exemption passed without such a vote and therefore is unconstitutional.

“I feel confident that the correct process was followed,” Dismang said Tuesday. “The votes needed to have it approved by the chambers were there, and in fact it actually achieved the 75 percent threshold needed for passage.”

The tax break was written into an appropriation for the Revenue Services Division of the state Department of Finance and Administration. Appropriations require a three-fourths majority in each chamber to pass — a higher threshold than the two-thirds majority vote needed to consider a non-appropriations bill in a special session.

Nunn’s attorney, John Burnett, said the number of votes the appropriation received is not the issue. He said the votes needed to consider a tax break during a fiscal session may have been there, but that procedural vote was never taken.

“Could they have done it? I suppose so. Did they? No,” he said.

The lawsuit also alleges that the Legislature ignored constitutional requirements that appropriations bills have a directly stated purpose and that substantive changes must be linked to the subject of the bill.

Nunn said the lawsuit is prompted not by objections to the tax break in particular but by a belief that “the Legislature ought to abide by the constitution.”

Dismang said he believed a two-thirds vote was not required. He noted that a circuit judge ruled earlier this year that proppants used in oil and gas drilling fall under Arkansas’ sales tax exemption for manufacturers’ equipment. That ruling has been stayed pending an appeal by the state.

“This was a clarification,” Dismang said. “It didn’t require a bill. It had been ruled on.”

Asked why he did not propose the language on the sand tax as a separate bill to avoid questions about the legality of the process, Dismang said the issue came up after the bill-filing deadline for the fiscal session had passed.

During the session, Gov. Mike Beebe vetoed the section of the Revenue Services Division appropriations bill that included the tax break, saying it had not been approved in the proper manner for a non-appropriations measure, but the Legislature overrode the veto.

DF&A officials testified against the tax break during the session. Tim Leathers, the agency’s deputy director, said Tuesday the state would file a reply to the lawsuit, but he did not immediately know who would handle the defense.