TO AMEND THE LAW CONCERNING THE ASSESSMENT OF PROPERTY; TO AMEND THE LAW CONCERNING SUBSTANTIAL IMPROVEMENTS TO REAL PROPERTY; AND TO AMEND THE METHOD OF VALUATION FOR REAL PROPERTY UNDER ARKANSAS CONSTITUTION, ARTICLE 16, § 5.

2025 Regular Session Introduced by Josh Bryant and 2 co-sponsors

HB 1386 clarifies property tax assessments in Arkansas by defining "substantial improvements" and limiting valuations to in-state properties, potentially lowering taxes for some owners.

Notification that HB1386 is now Act 410

Purpose and Intent

House Bill 1386 (HB 1386) aims to amend existing laws regarding the assessment of property in Arkansas, specifically focusing on the definition of "substantial improvements" to real property and the method of valuation for real estate. The bill seeks to clarify how property improvements are assessed for tax purposes and to ensure that only properties located within the state are considered in valuation processes.

Key Provisions

Definition of Substantial Improvement:

HB 1386 defines "substantial improvement" as an enhancement to real property that increases the square footage by at least 25%.
Necessary repairs due to natural disasters are excluded from this definition unless they involve higher quality materials than those originally used.

Amendments to Valuation Procedures:

The bill amends Arkansas Code § 26-26-1202 to stipulate that only real property located within Arkansas will be considered when determining the market value of residential properties.
For commercial properties, out-of-state properties may be considered only if there are no comparable properties within Arkansas.

Repeal of Previous Definitions:

The bill repeals the authority of the Assessment Coordination Division (ACD) to define "substantial improvements" by rule, establishing a statutory definition instead.

Impact

Taxpayer Implications:

The new definition may reduce the number of improvements classified as "substantial," potentially lowering property tax assessments for some property owners.
The exclusion of necessary repairs from the definition of substantial improvements could affect property owners who have made repairs following natural disasters.

Fiscal Impact:

The bill may lead to an indeterminate impact on county property tax collections due to a potential decrease in the number of substantial improvements recorded during appraisals.

Training and Implementation:

Assessment professionals, including county assessors and reappraisal contractors, will require additional training to adapt to the new definitions and valuation methods.
Modifications to current appraisal procedures and educational materials will be necessary, which may complicate compliance with the effective date of January 1, 2025.

Procedural Aspects

Effective Date: The provisions of HB 1386 will take effect for assessment years beginning on or after January 1, 2025.

Legislative Journey: The bill was introduced on February 3, 2025, and has passed through various legislative stages, including amendments and committee reviews, before being enacted as Act 410 on March 25, 2025.

Conclusion

HB 1386 represents a significant change in how property improvements are assessed in Arkansas, with implications for property owners, assessors, and county tax revenues. By establishing a clear definition of substantial improvements and limiting valuation comparisons to in-state properties, the bill aims to streamline property assessment processes while addressing concerns about property tax fairness.

Bill