Understanding and complying with the sales tax requirements in the states in which you do business is absolutely essential. More states are taxing services, as well as retail sales, so no business owner can afford to be in the dark. In addition, you may find that you are liable for use taxes for products purchased out of state. This article answers some of the basic questions regarding sales tax in Arkansas.
Arkansas imposes a tax based on the gross receipts from sales. Sales of tangible personal property or services to contractors and sales to consumers or users are generally subject to the gross receipts tax.
The following services, among others, are subject to the Arkansas gross receipts (sales) tax:
- Boat Storage and Docking Fees
- Body Piercing, Tattooing, and Electrolysis
- Cleaning Parking Lots and Gutters
- Collection and Disposal of Solid Waste
- Dry Cleaning and Laundry Services
- Industrial Laundry Services
- Furnishing Campground Spaces or Trailer Spaces at Public or Privately Owned
- Campgrounds on Less than a Month-to-Month Basis
- Locksmith Services
- Mini Warehouse and Self Storage Rental Services
- New Installation and Replacement Labor for Flooring
- Pest Control Services
- Pet Grooming and Kennel Services
- Security and Alarm Monitoring Services
- Wrecker and Towing Service
Leases. Arkansas' definition of sale includes the lease or rental of tangible personal property. The tax is paid on the basis of rental or lease payments made to the lessor. Instead of the gross receipts tax, a rental vehicle tax is imposed on the gross receipts derived from rentals of licensed motor vehicles leased for 30 days or less. The rental vehicle tax does not apply to diesel trucks rented or leased for commercial shipping, or farm machinery or equipment rented or leased for a commercial purpose. The tax also does not apply to gasoline or diesel powered trucks rented or leased for residential moving or shipping.
Sales and use tax rate. The Arkansas state sales and use tax rate is six percent of the sales price on the state level, although food sales are taxed as two percent.
Food and food ingredients (for sales tax purposes) are "substances, whether in liquid, concentrated, solid, frozen, dried, or dehydrated form, that are sold for ingestion or chewing by humans and are consumed for their taste or nutritional value." However, food sales do not include sales of alcoholic beverages (which are subject to additional tax,) tobacco, dietary supplements, or prepared food.
Local governments in Arkansas are allowed to assess an additional local sales and use tax. Other activities, such as mixed drink sales are subject to additional taxes. You can check the sales tax rates on the Arkansas Department of Finance and Administration sales and use tax web page Some Arkansas local taxes are administered by the local governments, so be sure to check with your local government officials to find out the rules that will apply in your area. The DFA website has a look up tool that can be used to determine tax rates for your localities.
Sellers are responsible for paying sales tax
In Arkansas the gross receipts (sales) tax is imposed on the retailer or other person conducting the business. The retailer or other person is responsible for paying the tax to the Arkansas Department of Finance and Administration, but may (or may not) pass the tax on to the consumer. Losses or expenses are not deductible, but bad debts may be deducted from the total amount upon which the tax is calculated for any report.
Absorbing the sales tax is permitted. The sales tax is the responsibility of the seller. It appears that retailers are able to advertise or state to the public that the tax will not be added to the selling price.
Obtaining tax permits in Arkansas
Every person receiving gross proceeds of sales upon which the sales tax is imposed must obtain a gross receipts tax permit for each business location. The permit is obtained from the Department of Finance and Administration. A non-refundable fee of $50 is required for an Arkansas gross receipts tax permit.
Many items and transactions are not taxable
Arkansas includes many specific items that are exempt from sales tax — for example, newspapers and gasoline or motor fuel (note that a separate excise tax applies to such fuel). You'll want to check and see if you or items you sell are exempt from the tax.
The Arkansas Department of Finance and Administration issues exemption certificates, otherwise known as Form ST-391. A seller who relies in good faith on a purchaser's claim or on documentation provided by the purchaser representing that the purchaser is entitled to an exemption from tax is relieved of the liability for sales tax, and any penalty and interest due on the sales of tangible personal property or taxable services.
Resale exemptions and blanket exemptions are two of the most important exceptions to sale tax liability. In addition, it is important to understand if you have enough "presence" within a state to be taxed by it.
Items sold for resale are not taxed
Retail permits or resale permits, including those issued by other states, may be accepted by Arkansas sellers to establish entitlement to the "sale for resale" exemption. The sale for resale exemption is only applicable if the purchaser has a sales tax permit. The certification that a sale is for resale can be made on the bill, invoice, or sales slip retained by the seller, or a certification letter can be provided to the seller.
This certification should include:
- the name and address of the purchaser
- the retail permit number of the permit issued to the purchaser
- a statement that the purchaser is engaged in the business of reselling what was purchased
- a statement that the articles purchased are purchased for resale
- the signature of the purchaser
Blanket resale certificates are permitted
Sellers who repeatedly sell the same type of property to the same purchaser may accept a blanket certificate that covers more than one transaction with that purchaser. A blanket certificate will relieve the burden of executing a separate certificate for each individual tax-exempt purchase as long as there is no significant change in the operations. There is no prescribed form for a blanket certificate, but it should include all the information that a resale certificate needs.
Physical presence triggers tax liability
Arkansas no longer has a statute that specifically taxes out-of-state mail order and catalogue sellers. You will be responsible for paying sales tax only if you have physical presence within Arkansas. To determine if you have physical presence, ask yourself the following:
- Do I have retail facilities, a warehouse or any office space in Arkansas? Maintaining retail or warehouse facilities will give you physical presence. Also, having an office for employees, even for business activities unrelated to mail order sales, will give you physical presence.
- Do my employees or I enter Arkansas for purposes of taking and transmitting orders from Arkansas? If your employee or independent contractor goes into Arkansas to take or transmit orders your business may have physical presence in Arkansas. However, contracting with a common carrier to deliver mail order goods does not constitute physical presence.
- Do my delivery vehicles frequently enter Arkansas for purposes of delivering property? Frequent deliveries in Arkansas by your trucks will give you physical presence in Arkansas.
Use tax imposed on out of state purchases
Arkansas use tax is imposed on the privilege of storing, using, distributing or consuming tangible personal property (including computer software). A compensating tax is imposed on tangible personal property purchased by public transportation carriers, railroads, public pipe line carriers, airline carriers, telephone and telegraph companies, gas, water and electric power companies, and financial institutions. There are many exceptions to the use tax, including property on which sales tax has been paid or which is exempt from sales tax.
The Arkansas compensating (use) tax is collected from every person in Arkansas for the privilege of storing, using, consuming or distributing any article of tangible personal property in this state. There are several exceptions to the use tax, including property on which sales tax has been paid or which is exempt from sales tax.
A credit for tax paid in another state is given for any tangible personal property upon which a like tax has been paid in another state. If the amount of tax paid in another state is less than the amount due in Arkansas, the purchaser must pay the difference to Arkansas.
Claiming refund for excess tax payments
A refund is claimed by filing an amended return or a verified claim for refund. The claim should include the name of the taxpayer, the time when, and the period for which, the tax was paid, the amount of tax claimed to have been erroneously overpaid, and the grounds upon which a refund is claimed.