Arkansas Economic Development Commission

Taxation

Fair and Pro-Business

A major indicator of a state's business climate is its tax structure. Arkansas maintains a fair and pro-business tax system.

Looking to expand or locate a business in Arkansas?

Freeport Law

Arkansas’s Freeport Law §26-26-1102 provides that all goods manufactured in the state and stored for shipment outside Arkansas will not be assessed for taxation. 

Arkansas Freeport Law §26-26-1102

Arkansas’s Freeport Law applies to finished inventories maintained by manufacturers within the state and to goods stored in warehouses in transit to destinations outside the state.

This law provides that all goods manufactured within the state and stored for shipment outside Arkansas shall not be assessed for taxation in the state.

Also covered in this tax exemption are goods that are moving through the state and may be stored in a warehouse, dock, etc., which are in transit to a destination outside of Arkansas.

Act 269 of 1969 states: “Tangible personal property in transit for a destination within this State shall be assessed only in the taxing district of its destination. Tangible personal property in transit through this State and tangible personal property manufactured, processed or refined in this State and stored for shipment outside the State shall, for purposes of ad valorem taxation, acquire no situs in the State and shall not be assessed for taxation in this State.”

A unique feature of Act 269 of 1969 is that goods that are manufactured in this state and then stored in a warehouse prior to distribution to points outside the state are not assessed for taxation in Arkansas. 

Capital Gains Tax Reduction

Act 1173 of 2015 allows for an exemption of 45% of capital gains after February 1, 2015. This exemption increases to 50% beginning on or after July 1, 2016.

As of January 1, 2014, the amount of net capital gains in excess of $10 million from gains on or after January 1, 2014 is exempt from state taxation.

Corporate Franchise Tax - 0.3% of Capital Stock

The chart below lists the franchise tax rates for various entities under Arkansas Code 26-54-104.

Franchise Tax Type Current Rate
Corporation/Bank with Stock 0.3% of the outstanding capital stock; $150 minimum
Corporation/Bank without Stock $300
Limited Liability Company $150
Insurance Corporation Legal Reserve Mutual, Assets Less Than $100 million $300
Insurance Corporation Legal Reserve Mutual, Assets Greater Than $100 million $400
Insurance Company Outstanding Capital Stock Less Than $500,000 $300
Insurance Company Outstanding Capital Stock Greater Than $500,000 $400
Mortgage Loan Corporation 0.3% of the outstanding capital stock; $300 minimum
Mutual Assessment Insurance Corporation $300
Corporate Income Tax - 1%-6.5% of Net Income

Taxable income is apportioned according to a three-factor formula (property, payrolls and sales attributed to Arkansas) with a double-weighted sales factor. 

Taxable Income Tax Rate
First $3,000 1%
Next $3,000 2%
Next $5,000 3%
Next $14,000 5%
Next $75,000 6%
Over $100,000 6.5%

If a business activity is derived from activity inside and outside the state of Arkansas, it is apportioned for taxation according to the percentage of property and payrolls utilized in the state and sales attributable to Arkansas pursuant to the multi-state compact. 

A corporation doing business in Arkansas and sustaining a net operating loss may carry forward the loss to the next succeeding taxable year and annually thereafter for a total period of five years succeeding the year of such loss and deduct it from Arkansas taxable income. 

Qualified biofuels manufacturers investing at least $20 million and creating at least 100 new jobs may receive income tax exemptions for up to 20 years. Qualified windmill blade or component manufacturers classified under NAICS Code 333611 may receive income tax exemptions for up to 25 years based upon the investment, job created, tier status and employee wages. 

For more information regarding your company’s specific tax situation or if you have other questions, please contact Kurt Naumann at (501) 682-7308 or knaumann@arkansasedc.com.

Personal Income Tax

Resident and non-resident individuals, estates and trusts deriving income from within the state are subject to a tax on their net income at the following rates:

2015 Tax Rates

At Least But Not More Than Tax Rate
$0 $4,299 0.9%
$4,300 $8,399 2.4%
$8,400 $12,599 3.4%
$12,600 $20,999 4.4%
$21,000 $35,099 6.0%
$35,100 and over 7.0%

2016 Tax Rates

Incomes less than $21,000 per year  
   
$0-$4,299 0.9%
$4,300 - $8,399 2.4%
$8,400 - $12,599 3.4%
$12,600 - $20,999 4.4%

 

Incomes between $21,000 and $75,000*   Incomes greater than $75,000  
       
$0-$4,299 0.9% $0-$4,299 0.9%
$4,300 - $8,399 2.5% $4,300 - $8,399 2.5%
$8,400 - $12,599 3.5% $8,400 - $12,599 3.5%
$12,600 - $20,999 4.5% $12,600 - $20,999 4.5%
$21,000 - $35,099 5.0% $21,000 - $35,099 6.0%
$35,100 - $75,000* 6.0% $35,100 and above 6.9%

 *for incomes over $75,000, the tax rate for income from $21,000 to $35,099 is 6% and the tax rate for income greater than $35,099 is 6.9%

Incomes between $75,000 and $80,000 shall reduce the amount of income
tax due by deducting a bracket adjustment as set forth below:

$75,001 - $76,000 $440
$76,001 - $77,000 $340
$77,001 - $78,000 $240
$78,001 - $79,000 $140
$79,001 - $80,000 $40
$80,001 and above $0

 

Property Tax

The State of Arkansas does not have a property tax. However, Arkansas cities and counties do collect property tax, which is the principle local source of revenue for funding public schools. The tax is calculated based on 20% of the market value of real and personal property and the average annual value of merchants' stocks and/or manufacturers' inventories based on millage rates in individual school districts. Business firms and individuals are subject to annual property tax on all real and personal property.

Payment in Lieu of Property Taxes (PILOT)

Real and personal property financed by revenue bonds and general obligation bonds may be exempt from property taxes during the lease-amortization period
in which a local government retains title to a property. Payments by businesses to local governments in lieu of property taxes are generally encouraged and negotiated between the locality and the company.

The negotiated PILOT shall not be less than 35% of the property taxes that would have been paid if the property were on the tax rolls, unless a lesser amount is approved by the Executive Director of the Arkansas Economic Development Commission and the Chief Fiscal Officer of the State of Arkansas. 

Sales and Use Tax

The Arkansas sales tax is 6.5% of the gross receipts from the sales of tangible personal property and certain selected services. “Sale” includes the lease or rental of tangible personal property.

Taxable services include sales of gas, water, electricity, most solid waste disposal, telephone and prepaid telecommunications and repair services. Repair and replacement parts for manufacturing machinery are generally taxable. However, one percentage point of sales and use taxes may be refunded for purchases of machinery and equipment or replacement parts purchased to modify, replace, or repair manufacturing machinery and equipment. Additional discretionary refunds are available through AEDC's Replacement and Repair of Manufacturing Machinery and Equipment Sales and Use Tax Refund Program.

The Arkansas compensating use tax of 6.5% is levied on tangible personal property purchased from outside the state of Arkansas for use, storage or consumption within the state of Arkansas.

Exemptions from Sales and Use Taxes

  • Any interstate or international private communications service and any interstate or international 800 or 900 service.

  • Property that becomes a recognizable, integral part of property manufactured, compounded, processed or assembled for resale.

  • Machinery and equipment used directly in manufacturing that are purchased for a new manufacturing facility or to replace existing machinery and equipment. Machinery and equipment required by Arkansas law to be purchased for air or water pollution control or for removal of sulfur pollutants from refined petroleum are also exempt.

  • Catalysts, chemicals, reagents and solutions that are consumed or used in producing, manufacturing, fabricating, processing or finishing articles of commerce at manufacturing or processing plants or facilities; and/or to prevent or reduce air, water and other contamination.

  • Sewer services.

  • Electricity, liquified petroleum gas and natural gas used (and separately metered) for qualifying agricultural structures and qualifying aquaculture and horticulture equipment and for commercial grain drying and storage.

  • Gas produced from biomass in a facility meeting federal eligibility requirements and sold to an entity for the purpose of generating steam, hot air or electricity to be sold to the gas producer.

  • Dental appliances sold by or to dentists or other professionals.

  • Electricity used in the production of aluminum metal by the electrolytic reduction process.

  • Electricity used in the chlor-alkali manufacturing process.

  • Feedstuffs and medicines used in livestock production, including poultry for commercial production in Arkansas.

  • Agricultural chemicals, fertilizer and limestone used in the commercial production of agricultural products.

  • Electricity and natural gas used by steel manufacturers. 

  • Timber harvesting equipment.

  • New or used farm equipment or machinery.

  • Natural gas used as fuel in the process of manufacturing glass.

  • Forms which are consumed or destroyed during the manufacture of the item for which the form was built.

  • Repair or maintenance services performed on railroad cars, parts or equipment brought into the state only to be repaired, refurbished, modified or converted.

  • New aircraft manufactured or substantially completed in Arkansas for use exclusively by the purchaser outside of Arkansas.

  • Natural gas and electricity used in the manufacture of new motor vehicle tires.

  • Products used for baling, packaging, tying, wrapping or sealing animal feed products. 

  • Certain parts and services to incorporate the parts or other tangible personal property into commercial jet aircraft components and subcomponents

Local Sales and Use Taxes

In addition to the state sales and use tax, local sales and use taxes may be levied by each city or county. However, businesses may apply to the Arkansas Department of Finance and Administration for a refund of local taxes. “Single transaction” means any sale of tangible personal property or taxable service reflected in a single invoice, receipt or statement for which an aggregate sales or use tax amount has been reported or remitted to the state for a single, local taxing jurisdiction. These taxes are collected by the state and distributed to the cities and counties each month. 

 

Sales Tax Reduction

Energy (electricity and natural gas) used by manufacturers in the manufacturing process is taxed at 0.625% effective July 1, 2015.

Unemployment Insurance Tax

New Businesses

Taxable wage base = $12,000

Rate = 3.2%

A business with no previous employment record in Arkansas is taxed at 3.2% on the first $12,000 of each employee’s earnings until an employment record is established, usually within three years.

Existing Arkansas Businesses

Rate = 0.1% - 14.0%

Each business’ employment record is determined primarily by its taxable payroll and history of employee voluntary termination. The tax is determined by past experience and the amount of the reserve ratio. The reserve ratio is the excess of contributions paid over benefits charged as related to payroll. The higher the reserve-ratio, the lower the tax rate.