LITTLE ROCK — Gov. Asa Hutchinson on Tuesday signed into law a bill to exempt military retirement and survivor benefits from the state income tax.

House Bill 1162 by Rep. Charlene Fite, R-Van Buren, now Act 141 of 2017, is set to take effect Jan. 1, 2018.

The measure also will reduce the state’s special excise tax on soft-drink syrup, a tax that generates revenue for the state Medicaid program and that Hutchinson has said was intended originally to be temporary.

The new law calls for the transfer of $5.9 million a year from general revenue to the Medicaid program to offset the tax reduction.

To offset the veterans’ tax break, estimated to cost $13.4 million a year, and the transfers to Medicaid, the measure will repeal a state income tax exemption on unemployment compensation; end the classification of candy and soft drinks as groceries so the state sales tax on them would increase from 1.5 percent to 6.5 percent; and levy a sales tax on digital downloads of movies, books and ringtones.

Hutchinson said in a statement Tuesday, “This initiative will make Arkansas a more military friendly retirement destination and will encourage veterans to start their second careers or open a business right here in the Natural State. I am confident that adding these highly skilled and educated veterans to our workforce will spur economic development and benefit all Arkansans.”