The burden of paying for statewide programs and services falls disproportionately upon low- and middle-income families – as well as small businesses that operate only in Arkansas. Meanwhile, many large corporations that take full advantage of Arkansas highways, school s, economic development incentives, and other services are no t paying their fair share. Because of various tax write-offs and corporate loopholes, 58 percent of companies filing tax return s in Arkansas in 2002 paid no state income tax.

For example, a number of corporations operating in multiple states avoid state taxes by shifting revenues they earn in Arkansas to a holding company in a state that does not tax corporate income. In effect, the companies “pay” an amount equivalent to what they have earned in Arkansas to the holding company, covering questionable expenses such as fees for patents and trademarks. They can then “deduct” the “payment” to eliminate or minimize their taxable income. This loophole costs Arkansas between $38 to $95 million annually in lost tax revenues.