As a small business owner, you have a lot on your plate. From managing employees to marketing your products or services, there are many competing tasks that require your attention each day. However, one area that should never be overlooked is proper accounting and sales tax management. Navigating the complexities of sales tax can be challenging, but this guide will help simplify the process and ensure compliance with Arkansas laws.
In this post, we'll discuss various aspects of Arkansas Sales Tax, including determining nexus within the state, registering your business for sales tax purposes, calculating rates based on applicable exemptions or taxable items, filing and paying taxes correctly to avoid common mistakes.
Additionally, we'll explore whether Software as a Service (SaaS) is taxed in Arkansas and how Accountingprose's services can assist you with managing your business's sales tax needs effectively. By following our Arkansas Sales Tax Guide closely, you'll gain valuable insights into navigating these complex regulations while minimizing potential issues that may arise from non-compliance.
|
Table of Contents |
✔️ Do you need to contact the Arkansas Department of Finance and Administration?
✔️ Unsure if you should call them or contact them through their website?
✔️ Do you wonder what information you need handy before you contact them?
If you answered “Yes” to any of these questions, you’re in exactly the right place!
You may contact the Arkansas Department of Finance and Administration by calling 501-682-7104, emailing Sales.tax@dfa.arkansas.gov, or contacting them via their website. Arkansas doesn’t have any locations you can visit for help.
There are three pieces of information that you should have on hand before you contact the Arkansas Department of Finance and Administration.
They are:
Taxpayer Name
EIN
Sales & Use Tax ID Number (don’t worry, EIN will suffice if this number is misplaced)
If you are calling on behalf of someone else, or having someone else call on behalf of your business, you need to have one more piece of information: An active, signed Arkansas Power of Attorney (PDF).
Why?
If you do not have this, they will simply not be permitted to talk to you. This document authorizes the tax authorities in Arkansas to discuss a business’ taxes with someone other than the owner.
If you have any more questions, please feel free to contact us so we can assist you with your sales tax needs.
As an Arkansas business owner, it's crucial to understand the state's sales tax requirements and stay compliant with regulations by knowing when your business has sales tax nexus, registering for a sales tax license, calculating rates accurately, and filing returns on time.
Your business must have some form of nexus within the state to collect and remit sales tax in Arkansas, which can be triggered by physical presence, economic activity, affiliate relationships, click-through arrangements with online retailers, or being part of a marketplace facilitator.
Let's see what creates the different types of nexus in Arkansas...
Registering for a sales tax license in Arkansas requires providing information about your company structure and ownership details along with paying any applicable fees.
Want to sell your products legally in Arkansas? Here's how to register for a sales tax license:
Gather the necessary information
Register Online or via a Paper Application
Pony up $50
Once you're registered, you'll receive an Arkansas Sales & Use Tax Permit and other documentation that allows you to collect sales tax from customers legally within the state.
(Need a little refresher on use tax? Check out our sales tax vs use tax blog here.)
When registering for an Arkansas sales tax license, you will typically need the following information:
The Federal Employer Identification Number of the business or your Social Security Number if registering as a sole proprietor
The NAICS code(s) that best describe the nature of your business. Visit the NAICS Website for help in determining your appropriate NAICS Code(s).
Details regarding the entity structure - meaning, are you an LLC, S-Corp, C-Corp, etc.
The Name, address, phone number, email, and Social Security Number of each owner, partner, or corporate officer in the business
Bank account details to submit an application fee via ACH Debit
The business location address, and a mailing address if separate
If you have purchased inventory, fixtures, or equipment of an established business, you will need the name and account ID of the former business and a copy of the Bill of Sale
If your business sells or serves alcoholic beverages, your Alcohol Beverage Control (ABC) permit number
If you are leasing your business property, a copy of your lease agreement
If you are operating a business from your private residence, a copy of your city business license
Apply for an Arkansas sales tax permit online through the Arkansas Taxpayer Access Point (ATAP) or by mail using Form ET-1. Online registration is faster and more convenient.
Once approved, display your sales tax permit from the DFA at your business.
The Arkansas Department of Finance and Administration currently charges $50 to issue a new sales tax license.
Yes, you will need a Federal Tax Identification Number, also known as an Employer Identification Number (EIN), to register for an Arkansas sales tax license. An EIN is a unique nine-digit number issued by the Internal Revenue Service (IRS) to identify your business for tax purposes.
The EIN is used to track your business's tax liabilities and filings with both the federal government and state agencies, including the Arkansas Department of Finance and Administration. It is required for various tax-related activities, including registering for sales tax, filing tax returns, and communicating with tax authorities.
If your business is structured as a sole proprietorship, you have the option to use your Social Security Number (SSN) instead of an EIN. However, obtaining an EIN is generally recommended as it helps separate your personal and business finances and provides an added layer of privacy and security.
You can easily apply for an EIN from the IRS by completing Form SS-4 online or by mail. The process is free, and once you have obtained your EIN, you can use it to register for a sales tax license in Arkansas.
In addition to registering for a sales tax license with the Arkansas Department of Finance and Administration, there are several other agencies in Arkansas that you may need to register with, depending on the nature of your business activities. Some of the common agencies include:
Arkansas Secretary of State: If you are operating as a corporation, limited liability company (LLC), or partnership, you may need to register with the Arkansas Secretary of State's office. This ensures your business is properly formed and recognized under state law.
Arkansas Department of Labor: If you have employees in Arkansas, you will need to register with the Arkansas Department of Labor for various employment-related obligations, such as workers' compensation insurance and wage reporting.
Arkansas Department of Workforce Services: If you have employees, you will also need to register with the Arkansas Department of Workforce Services for unemployment insurance purposes.
Arkansas Department of Health: Certain businesses, such as food establishments or healthcare providers, may require additional permits or licenses from the Arkansas Department of Health.
Local Agencies: Depending on the location of your business, you may need to register with local county or municipal agencies for business licenses, permits, zoning compliance, or other local requirements.
It's important to research and identify the specific agencies that apply to your business based on its activities and location. Each agency may have its own registration requirements and processes. Contacting the respective agencies or consulting with a business attorney or advisor can help ensure you comply with all necessary registrations and obligations in Arkansas.
Collecting sales tax isn't terribly complicated, but it is important that know how to handle it properly so you don't have any surprise tax bills show up. Follow these steps and you're home free!
First, determine whether or not your products and services are taxable or are exempt from sales tax. Not everything sold in Arkansas is taxable, so check the DFA guidelines to be sure.
Next, calculate the correct sales tax rate. Arkansas is Destination-Based sales tax state, which means that you charge the local sales tax rates according to the buyer’s shipping address (where the product is received by the buyer).To make managing your tax responsibilities easier, you can use an eCommerce or point of sale software to appropriately charge sales tax by customer location or you can use this sales tax lookup tool.
Be sure to add sales tax to invoices. Make sure customers know how much they owe by including the appropriate sales tax amount on invoices.
Don't forget to keep detailed records of all transactions involving sales taxes, including exemptions claimed by customers with valid certificates.
Before collecting any taxes, register for an Arkansas Sales Tax Permit through the DFA to stay compliant with regulations.
Because Arkansas is a Destination-Based Sales Tax State, you collect Arkansas sales taxes if the buyer’s address is within the state of Arkansas.
You collect the sales tax for your location directly via your POS system.
For in state sales, you charge the local tax of the recipient address [your PoS or sales system should be configured to do this for you]. While there is no law in Arkansas requiring that you pay use taxes in other states, their state laws may require such. Utilizing the Streamlined Sales Tax program may reduce the complexity for those states which participate.
As of May 2019, 6.5% But! Sales Tax Rates change all of the time-- and may vary by what is being sold! It's best to check out the Arkansas Department of Finance and Administration site here to be sure you’re up to date.
Don't forget to add any applicable local rates, like county or city taxes, which can vary depending on where your business operates or delivers goods/services.
In Arkansas, sales tax is generally applied to the retail sale, lease, or rental of tangible personal property and certain services. Some items and services that are subject to sales tax in Arkansas include:
Tangible personal property: This is any physical item that can be seen, weighed, measured, felt, or touched. Examples include furniture, appliances, books, and electronics.
Certain services: Services that are subject to sales tax in Arkansas include body piercing, tattooing, electrolysis, pet grooming and kennel services, dry cleaning and laundry, security and alarm monitoring, wrecker and towing services, and many more.
Prepared food and beverages: Food sold at restaurants and similar establishments is usually subject to sales tax.
Some digital products: This can include digital books, music, movies, and more.
Motor vehicles: The sale of motor vehicles, trailers, semi-trailers, and aircraft that are required to be registered are subject to sales tax.
Leases and rentals: Leases and rentals of tangible personal property are typically subject to sales tax.
Sales tax law is complex and changes over time. For the most current and applicable information, it's always a good idea to consult with a tax professional or review the Arkansas Department of Finance and Administration's latest edition of the Gross Receipt Tax Rules.
Taxing software in Arkansas, as well as other states, is a complicated matter.
Check out A.C.A. § 26-52-304, 26-52-304. Tax levied on sales of computer software and maintenance of computer hardware — Definitions.
This specifically says, “Computer software” does not include software that is delivered electronically or by load and leave". So, while not specifically state "Software as a Service (SaaS) is not taxed in Arkansas, it is spelling this out in the definition. So, for now, if you are a SaaS company, you do not need to worry about sales tax in Arkansas.
Groceries: While groceries are taxable at a reduced rate, they're exempt from the full state sales tax rate.
Medical Equipment & Supplies: Prescription drugs and medical devices may be exempt from sales tax if sold by a licensed provider.
Nonprofit Organizations: Qualified nonprofit organizations may be exempt from sales tax on purchases made for their operations.
Correctly identifying taxable vs. exempt transactions is crucial for compliance, so consult the Arkansas Department of Finance & Administration website for a comprehensive list of exemptions.
Now that you know what is exempt, you will also want to learn who is exempt from sales taxes. This depends on the buyer: (1) what kind of buyer they are, and (2) how they intend on using the goods. A common example is the wholesale buyer who buys goods with the intention of reselling them.
More --but not all-- examples of an exempt buyer may include:
Specific non-profits, schools, religious or government organizations (though not federal employees absent organizational backing).
General Contractors
Purchases made with food stamps (WIC)
Service providers working for a retailer who will charge a customer tax
Altogether, to determine who is exempt, you have to consider the type of buyer and the buyer’s intention for purchasing the goods.
When you do business with buyer who is exempt from paying sales taxes, you do not have to worry about filling out any paperwork because that is the buyer’s responsibility. However, you as the retailer must collect --and retain-- the Arkansas sales tax exemption certificate (PDF) from the buyer. Be sure to keep this on file so you can justify any tax-exempt sales in the case of an audit. If you lose the certificate or fail to obtain a copy, you risk having to pay the outstanding taxes yourself.
On the other hand, you will want to read the information I provide in the next question.
This is a really great question. Basically, don’t do it! :D If you lose the certificate, you can be liable for charges as serious as fraud. If you aren’t able to prove the validity of tax-exempt sales, the best case scenario is are fines and penalties.
Luckily there is no reason to worry if you are working with us. We will be sure to keep your sales tax exemption certificates safe and sound in our shared Dropbox account.
Don't mess around with Arkansas sales tax returns - file them accurately and on time to avoid penalties and stay compliant with state regulations.
Determine your filing frequency: The Arkansas Department of Finance and Administration (DFA) will assign you a monthly, quarterly, or annual filing frequency based on your business's annual gross revenue.
Gather necessary information: Collect all relevant data, including total taxable sales, exempt sales, and the amount of sales tax collected during the reporting period.
Complete Form ET-1: Fill out the required fields in Form ET-1 - Arkansas Sales & Use Tax Return, which you can find on the DFA website.
Submit your return online or via mail: You can file electronically through the Arkansas Taxpayer Access Point (ATAP) or send a paper form to DFA by mail.
Pay any owed taxes: If you've collected more than $500 in taxes within a month or quarter, you must pay electronically using ATAP; otherwise, checks are accepted too.
Remember, late filings may result in penalties, so stay organized and adhere to deadlines.
In Arkansas, sales tax returns are generally due on the 20th of the month following the reporting period. If the 20th falls on a weekend or a holiday, the due date will be the next business day. Here's how it typically breaks down
It simply falls on the next business day. But remember, filing early is always better than risk being late.
There are two ways to file a sales tax return in the state of Arkansas.
Once submitted, you can only amend a return online at the ATAP website.
You always have to pay the piper-- best is early, better is on time, but if you are late? You’ll be penalized! 10% interest is charged on underpayments or late payments. The penalties for late payments:
Late Filing Penalty - 5% of the tax due for each month that return goes unfiled, not to exceed 35% of the total tax due
Late Payment Penalty - 5% of the tax due for each month that it remains unpaid, not to exceed 35% of the total tax due
Yes! In Arkansas, you get to retain 2% of collected sales tax (to a maximum of $1,000 per month) as a bonus for paying before the sales tax deadline.
Arkansas Sales Tax Holidays
Yes, Arkansas has a tax holiday the first weekend of Auguste each year. During the tax holiday, certain clothing and school supplies are exempt from sales tax. The Arkansas DFA makes an itemized list as well as a Retailer FAQ available if you have any further questions about the tax holiday.
Filing sales tax returns can be daunting, but it's essential to avoid mistakes that could lead to penalties or audits.
File on time: Don't miss the deadline to avoid late fees and interest charges.
Maintain accurate records: Keep invoices, receipts, and other documentation organized and up-to-date.
Verify exemption certificates: Ensure you have valid exemption certificates from customers for exempt products or services.
Avoid underpayment or overpayment: Double-check calculations to remit the correct amount of sales tax.
Deduct allowable credits: Claim any eligible credits to reduce overall sales tax liability.
For more efficient and cost-effective management of small business taxes, consider using professional accounting services like Accountingprose LLC.
|
Alaska Sales Tax Guide (N/A) |
||||
|
Montana Sales Tax Guide (NA) |
||||
|
Oregon Sales Tax Guide (N/A) |
||||
|
Delaware Sales Tax Guide (N/A) |
||||
|
New Hampshire Sales Tax Guide (NA) |
||||
And don't forget to check out our blog about Economic Nexus, which serves as an invaluable resource for businesses who have sales that are subject to sales tax.
This blog is for informational purposes only and the information is accurate as of 2023-06-19. If you want legal advice on sales tax law for your business, please contact a State and Local Tax (SALT) professional. Keep in mind that sales tax regulations and laws are subject to change at any time. While we strive to keep our blog current, this blog possibly may be out of date by the time you review it.