State & Local Tax Blog

Big Changes In Arkansas Sales Tax

Effective January 1, 2008, big changes have happened in Arkansas. The changes include how local city and county sales taxes are to be administered in the following circumstances:

• Delivery of Merchandise to Customers –Beginning January 1, 2008, if your business makes a retail sale of property and delivers the tangible property through common carrier, your truck, mail, or by any other shipping or delivery method to your customer, you will charge the state, county, and city taxes based on where the purchaser takes receipt or delivery.

• Taxable Services Performed in Arkansas — Beginning January 1, 2008, state and local sales and use tax for taxable services will be collected based on where the customer receives the service. If the service is not received by the purchaser at the seller’s business location, the local taxes due are based on where the purchaser takes receipt of the service provided. In most cases, the customer will take receipt of the taxable services where it is performed; however, this may not apply in all circumstances.

• Rental or Lease of Tangible Personal Property –A lease or rental that requires periodic payments is subject to sales tax as follows:

1. The first periodic payment is subject to state and local taxes based on where the lessee receives the property.

2. For periodic payments made after the first payment, the state, city, and county taxes are based on the “primary property location” of the tangible personal property for each period covered by the payment.

The primary property location is the address for the property provided by the lessee to the lessor in the ordinary course of business. The primary property location is not changed by intermittent use at different locations. If the property is moved to a new location and the lessor has been notified of the new location, the lessor will tax subsequent payments based on
the new location. If the lessor does not receive notice of a change in location, sales tax will continue to apply based on the address the lessee gave the lessor for the primary property location.

• Rental or Lease of Motor Vehicles, Trailers, Semi-Trailers or Aircraft — If your business leases or rents motor vehicles, trailers, semi-trailers, or aircraft that requires recurring periodic payments, you will collect the state, county, and city taxes due based on the primary property location. The primary property location is the address provided by the lessee in the ordinary course of business. The primary property location does not change by intermittent use at different locations. For a lease or rental that does not require recurring periodic payments, the local taxes are based on where the leased equipment is received by the purchaser.

• Taxable Services Purchased from Out of State Vendors for Use in the State of Arkansas — If you purchase services from outside the State that are subject to tax in Arkansas and first use the service within the State of Arkansas, then Arkansas state and local use tax is due based on where you take receipt of the services. Credit will be given for taxes legally imposed and paid in the state where the taxable service was performed.

• Elimination of City and County Local Tax Caps — Beginning January 1, 2008, local tax caps on single transactions will no longer apply when retailers collect city and county sales and use taxes. Since the caps no longer apply, retailers will collect the full amount of state, city, and county taxes on all transactions. Your customer may be eligible to apply to DFA for a refund of the local tax for qualified business purchases made on or after January 1, 2008.

The local tax cap will continue to apply to the first $2500 per item on the sale of motor vehicles, aircraft, watercraft, modular homes, manufactured homes, or mobile homes. Sellers should continue to apply the cap on the sales of those items only.
• Rebates or Refunds of Local Tax Paid to the Seller – Business Purchasers Only
Qualifying businesses may be eligible for a rebate or refund of the additional local tax paid on qualifying business purchases on purchase invoices that exceed $2500.00. A qualifying business purchase means a purchase of tangible personal property or a taxable service for which a business may claim a business expense deduction or depreciation deduction for federal income tax purposes. The purchase will be eligible even though the business purchaser may not be
required to file an income tax return. In addition, governmental agencies (including schools and colleges or universities) and non-profit organizations (including churches) may apply for rebates/refunds of additional local taxes paid.

For purposes of calculating the rebate or refund amount, a uniform single transaction definition has been adopted effective January 1, 2008: “Single transaction shall mean any sale of tangible personal property or taxable service reflected on 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.” Note: Refunds or rebates will no longer be issued by the city or county for purchases made on or after January 1, 2008. There is a six month time limit on requesting a rebate which begins on the date of the purchase or from the date of payment of the tax to the seller, whichever is later.
• Bad Debt Write Offs –Beginning January 1, 2008, bad debts may be deducted on the Excise Tax report for the tax period during which the bad debt is written-off as uncollectible on your books and eligible to be deducted for federal income tax purposes. The bad debt deduction is eligible for sales on which the tax has previously been reported and paid to DFA. The bad debt must have resulted from a sale that has occurred within the last three years. The deduction is available for taxpayers even though the business may not be required to file an income tax return. Some examples are governmental agencies (including schools and colleges or universities) and non-profit organizations (including churches). Bad debts include, but are not limited to, worthless checks, worthless credit card payments, and uncollectible credit accounts. Bad debts do not include financing charges or interest, uncollectible amounts on property that remain in the possession of the taxpayer or vendor until the full purchase price is paid, expenses incurred in attempting to collect any debt, debts sold or assigned to third parties for collection, or repossessed property.

Leave a Reply

Your email address will not be published.

What You Should Do Next

Have a state or local tax issue or question? Need help? Want peace of mind? We can help! Sign up for a free "What's Next" call and let us get to work for you.