As expected, the governor’s plan to create a tax exemption for veterans’ retirement pay was amended yesterday, with a new pay-for: a tax on digital downloads.

Governor Asa Hutchinson
‘s original proposal for the $13 million tax cut for veterans and their surviving spouses involved removing exemptions on unemployment compensation and the sales of mobile homes, and increasing the sales tax on candy and soft drinks.

However, removing the sales tax exemption on mobile homes proved politically untenable. Instead, the bill will include a new tax on digital downloads to make up the needed revenue.

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“There’s been a lot of support for the bill but obviously the manufactured housing gave a lot of people some pause,” explained Sen. Jake Files, chair of the Senate Revenue and Tax Committee, on Talk Business over the weekend. So they went looking for a revenue source to keep the overall package revenue neutral, Files said (worth noting that the bill’s package still includes $6.3 million giveaway to the soft drink industry via a reduction in the wholesale-level tax on soft drink syrup).

“There’s a carve-out for digital downloads that just deals with CDs, books, and movies — so when you walk into Wal-Mart or Best Buy you’re going to pay tax on those things,” Files told Talk Business. “If you download them, you don’t. This just brings equity to those two things, but it should bring the bill in line. And I think once we get this thing fixed next week, I think you’ll see smooth passage.”

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I haven’t seen any revenue estimates for the digital download tax but presumably it’s approximately equivalent to the $2.1 million that would have been raised via ending the sales tax exemption on mobile homes.