Should you collect sales tax in Arkansas?
Sales tax is levied on retail sales to your customers, including leasing or renting tangible personal property. However, you will collect the sales tax if you determine the nexus in Arkansas. A nexus is a presence that may come physically or economically.
A physical nexus is typically created when your business has a store, warehouse, or office location in Arkansas. An economic nexus is intertwined when you cross the paths with threshold limits as already stipulated by the state. These thresholds can be on a revenue or some other transactional basis.
Let’s explore if your business has a Physical nexus in Arkansas.
A physical nexus is integrated when your business is engaged in the following in Arkansas:
- Servicing tangible personal property in Arkansas.
- Maintaining, occupying or using a place of business or an office in Arkansas.
- Employing or retaining any contractor, including an agent, representative, or salesman, by whatever name is called, engaged in activities relating to selling, delivering, installing, or taking business orders.
- Having a stock of goods in Arkansas.
For more detailed instructions, refer to the Arkansas sales tax guide (“Doing Business” – Pg 25)
Constituting an Economic nexus in Arkansas?
If you are a remote seller (i.e., one who doesn’t have a physical presence in the state) and your business sales in Arkansas exceed $100,000 or the number of transactions exceeds 200 during the current or previous calendar year, you are required to comply with and register under sales tax rules.
You may also refer to the Arkansas Finance Department advisory to know more about business activities that may create an economic nexus within the state.
How can you Register for Sales tax in Arkansas?
You can apply online through Arkansas Taxpayer Access Point (ATAP) for a state sales tax permit. The state imposes a sale tax permit fee of $60 for each application. It generally takes two weeks to process your application.
Additionally, before applying for a new tax account number, make sure you have the following information handy:
- FEIN and Social Security numbers of all officers, partners or owners.
- Address details (physical and mailing).
- Business incorporation dates in Arkansas.
- Contact information.
- Nature of business.
- Business locations.
Is your product or services liable to Sales tax in Arkansas?
Tangible Property: Sales tax in Arkansas is imposed primarily on the retail sale of tangible personal property, such as Furniture, giftware, toys, etc.
Services: Many Services are generally chargeable to sales tax in Arkansas except otherwise stated. Exceptions include initial installation of exempt property, initial installation in new construction etc. Visit here (pg. 38) to know more taxability of services.
Digital Product: Arkansas charges sales tax on digital products such as software, streaming services, e-books, etc. Click here for the state’s guidance (GR-93) which levy tax on digital goods.
SAAS: SAAS is software that allows users to connect to the cloud and use it over an internet connection. This is non-taxable in Arkansas. Refer to guidance (GR-25) issued by the state.
The state grants some exemptions from the levy of sales tax, such as Motor fuel, the repair of commercial jet aircraft, prescription drugs, and medical equipment.
Click here for the sales tax guide issued by the Arkansas Department of Revenue for detailed instructions on the taxability of products and services. (from page 32)
How should you collect and calculate state taxes in Arkansas?
Collecting and computing accurate sales tax to be remitted to the state may involve stratospheric efforts, especially when you are not Arkansas-based. The sales tax is destination-based in Arkansas, which means you must collect taxes on tangible property sold to buyers based in Arkansas.
Complexities involved where you have a business nexus even if not in the state. Any default may lead to serious concerns, penalties, or fines by the state. That is what TaxDo is here for you! Our specialized sales tax calculator and professional services will simplify your job and lighten your compliance burden.
Arkansas has a base sales tax rate of 6.5%, followed by the local tax rates, which vary based on the city and municipality. Click here for the jurisdiction-wise sales tax rates.
Below is the simple formula you can use to calculate your sales tax collection on each merchandise sold:
Sales Tax collectible = Sale value * (6.5% plus local tax rate)
Do you need to collect sales tax on Shipping Charges?
If non-taxable items are sold, shipping charges associated with such a sale are not subject to sales tax. However, when a sale includes both taxable and non-taxable items, shipping charges need to be apportioned relatively between the taxable and non-taxable parts of the sale, and accordingly, sales tax is applicable to the taxable portion of the sale. Refer to the guidance issued by the state on shipping charges by clicking here.
How should you file sales tax in Arkansas?
E-file: You can file your return online through the Arkansas e-filing (ATAP) portal.
Sales tax must be paid along with the return. The state allows you to pay the tax via check, money order, credit card, or EFT.
For more details, please visit this link.
Filing frequencies and due dates
Based on your reported sales tax or estimated taxable sales, the state assigns you a filing frequency, which can be Monthly, Quarterly, or Annual. According to your filing frequency, the due date for filing sales tax would be the 20th day of the month following the relevant reporting period.
Visit here for more information provided by the Arkansas Revenue Department.
Note: If the due date happens to be a holiday or weekend, the next business day would be considered the final due date.
Are there any fines or penalties for default in filing or paying sales tax?
If you fail to file or pay the sales tax within the due dates, the state levies a penalty of 5% of sales tax for each month till the default continues, subject to a maximum of 35%. If payment is made late but the return is filed promptly, the penalty would be 1% per month, with the maximum penalty lying at 35%.
A minimum penalty for a return filed late for more than 30 days is $50, even if no tax is due. Here is what the Arkansas Department of Revenue has to say on penalty and interest.
However, assigning your tax burden to TaxDo would not result in you paying any penalty or interest. We will adhere to the due dates.
Sales tax holiday in Arkansas
The 2024 Arkansas sales tax holiday takes place on August 3 and 4. All retailers registered in the state can purchase certain Electronic Devices, School Supplies, etc. Refer to the Arkansas revenue department advisory for detailed information on the sales tax holiday.