Arkansas is making strides to modernize its tax code, specifically targeting the challenges faced by nonresident workers. Over the past decade, the state has simplified its individual income tax structure and reduced corporate income tax rates. However, Arkansas still ranks low in handling non-resident income tax filing and withholding thresholds.

In response, Representative David Ray (R) has introduced HB 1116, known as the Remote and Mobile Work Modernization and Competitiveness Act. This bill proposes three key changes:

Firstly, it suggests that Arkansas enter into reciprocity agreements with other states. Such agreements would mean residents are only taxed in their home state for work performed elsewhere. "This measure would add Arkansas to the list of 17 states that already have such agreements."

Secondly, the bill introduces an income exemption threshold of $2,500 for nonresident workers' Arkansas-sourced income. While this is below the national median threshold, it represents progress towards avoiding tax liability for minimal time spent working in Arkansas.

Lastly, there is a proposed withholding exemption for remote workers who spend fewer than 15 days working in the state. The current proposal falls short of the 30-day threshold used by most states with residency-based exemptions.

The Tax Foundation's State Tax Competitiveness Index currently ranks Arkansas 39th in individual income tax competitiveness. Implementing these changes could improve this ranking to 37th.

The bill aims to simplify compliance for nonresident employees and make Arkansas more attractive to remote workers and employers alike. Aligning with national norms could further enhance its impact by attracting top talent and positioning Arkansas competitively in the remote work landscape.