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Arkansas Local Taxes - Understanding the Local Tax Cap

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Arkansas has an unusual take on imposition of local taxes. Prior to becoming a streamline sales tax (SST) state beginning January 1, 2008, vendors would implement the local taxes with a ceiling limit of $2,500.00. However, when Arkansas became an SST state, the burden shifted to the purchaser to file for a rebate/refund of the local overage of $2,500.00.

Arkansas Local Taxes – How is the local tax cap applied?

First of all - let's review a few facts:

  1. Local taxes in Arkansas are administered by the state tax auditors.
  2. Arkansas is not a “home rule” state.
  3. Local taxes are collected at the full local tax rate from the customer.
  4. Local taxes also have a $2,500.00 ceiling cap which is the responsibility of the purchaser to obtain the rebate.
  5. The local ceiling cap applies to the total of the invoice, not each line on the invoice.

Example:

Invoice has 20 lines of items purchased which total $20,000.00.

The State Tax Rate of 6.5% is applied to the transaction and the registered vendor charges the Full Local Tax Rate (let’s say 2%) on the invoices.

State Tax Due $1,300.00

Local Tax Due $ 400.00

Total Tax Due $1,700.00

Local Tax Rebate is {$400.00 - $50.00 =} $350.00

Arkansas provides two methods of recovery of local tax ceiling of $2,500.00 on each invoice.

  1. Take the local tax rebate on the Excise Tax Return in the Local Tax section of the return (Column H). $20,000.00 - $2,500.00 = $17,500.00 times 2% Local Tax Rate = $350.00 Local Tax Rebate (negative figure on excise tax return)
  2. File ET-179A Form (if taxpayer does not currently have a sales/use tax permit). Fill out the form and submit a copy of the invoice with the form to the Arkansas Department of Finance and Administration. A check will be mailed upon review of the invoice.

How does the Arkansas Department of Finance and Administration handle the local taxes under Gross Receipts verse Compensating Use Tax?

Under Gross Receipts, the state of Arkansas makes the assessment on the full local tax rate as the purchaser must file for the rebate.

Under Compensating Use Tax, the state of Arkansas makes the assessment at the local tax ceiling cap of $2,500.00.

How far back can a business entity go to recover the local tax rebate?

With the passage of Act 896 of 2015, the local tax rebate can be received for invoices beginning with an invoice date of 10/01/2015 or one year whichever is appropriate. (Should the date be 11/01/2015 or later, the limitation is one year.)

Questions or comments? If you have any questions about this issue (or any other Arkansas sales tax topic) - feel free to submit a question or comment below - or submit a question or request directly to me through my FIRM PROFILE page.

About the Author: B.J. Pritchett, CMI, is the owner of Pritchett Sales & Use Tax Consulting and the Arkansas Sales and Use Tax School based in Hot Springs National Park, Arkansas. Learn more about her by visiting her author bio page.

Comments or questions may be submitted by using the on-page "Comment" feature, subject to disclaimer at bottom of page. Additional contact options (and Consultation Requests) are also available on B.J.'s associated Firm Profile page.

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