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Arkansas Statute of Limitations - and How It's Unique

author photo of B.J. Pritchett

The Arkansas Tax Procedures {Act 401 of 1979} provides a three year statute of limitations for assessments and refunds {Arkansas Statute 26-18-306(a)(1)}. However, Arkansas is unique in that under assessments, if the taxpayer has understated the tax liability by 25% or more, the state of Arkansas has the right to review and assess six years {Arkansas Statute 26-18-306(e)}. Unfortunately, if the tax is overstated by 25% or more, there is no extension to a six year refund.

The state of Arkansas has the right to make assessments for the three year statute of limitations. While the state of Arkansas has the right to review and assess tax in six years, the state is limited as to the years 4, 5 and 6. When the years 4, 5 and 6 are added, the state of Arkansas can only assess the months in those years that are understated by 25% or more. If a month in years 4, 5 and 6 is understated by 24%, it cannot be assessed tax under the audit.

If the taxpayer has signed a waiver extending the statute of limitations for assessments to a future date, mutually agreed upon, this also extends the statute of limitations for refunds. Sometimes it is in the taxpayer’s best interest to sign a waiver that extends the statute of limitations in order to address overpayments of tax in years 4, 5 and 6 of an audit.

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.

Other recent “Arkansas (AR)” posts by B.J. Pritchett, CMI:

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Comments

6 Responses to Arkansas Statute of Limitations - and How It's Unique

  • Posted by Ann on November 15, 2017 3:04pm:

    Is the out of state compensating use tax a trust tax? We have An S corp that is bankrupt and no longer doing business in Arkansas which was assessed use tax under audit. Are the shareholders personally liable for the tax?

    • Posted by BJ on November 15, 2017 4:05pm:

      I'm not sure what you mean by a trust tax - the state does trust the taxpayer to remit the appropriate tax when due. An S Corporation that is bankrupt and no longer doing business in Arkansas which was assessed use tax under audit would require the individuals who were owners of the S Corporation to pay the tax due. If none of the owners live in Arkansas, the state of Arkansas would have nothing to attach a lien to and would wait until such time as one of the individuals comes into the state of Arkansas with tangible personal property or real property ownership. If all owners are out-of-state, the state of Arkansas is out of luck. Let me know if this answers your question.

  • Posted by Carmen on September 27, 2017 12:39pm:

    I am in the process of a sales and use tax audit for our business. After the auditor has finished and given us their findings, what is the proper way to request a waiver of statute of limitations and it only to be extended 30-60 days?
    Thank you for your help!

    • Posted by Author photo of B.J. Pritchettbjpritchett on September 27, 2017 2:21pm:

      As soon as the auditor sits down with you to review the exceptions found, request the auditor to provide you a waiver of statute of limitations with an extension date of 30 or 60 days (your choice). The auditor should be able to have the waiver to you on the same day you requested it.

      If the auditor has already provided the "Summary of Findings" you may need to request from the auditor's supervisor or manager the waiver of statute of limitations. Generally, when the "Summary of Findings" is delivered, the taxpayer will next receive the "Notice of Assessment" from Little Rock and then you'll be in the "Protest" Phase of pay it or protest it within 60 days of receipt of the "Notice of Assessment". Keep the Envelope the Notice comes in as this would have a postal date on it.

      Just keep in mind, interest will continue to accrue on the tax due portion of your audit.

  • Posted by Author photo of B.J. Pritchettbjpritchett on September 18, 2017 8:27am:

    The sales tax is imposed on all Contractors making purchases of materials to be used in construction or substantial remodeling of buildings.

    If the Contractor is a Sub-Contractor, the Sub-Contractor is also liable for the sales tax on purchases of materials to be used in construction or substantial remodeling of buildings.

    As long as the Contractor/Sub-Contractor are working on Real Property, the tax liability falls to the Contractor/Sub-Contractor.

    There are three exceptions: flooring, locks and electrical devices in EXISTING BUILDINGS.

    If the Contractor/Sub-Contractor works on flooring, locks and electrical devices in Existing Buildings, the Contractor/Sub-Contractor may purchase the materials used in the three exceptions Tax-Free as these three exceptions are Taxable Services by Contractors/Sub-Contractors.

    SOURCE: Arkansas Rule GR-21 or Statute 26-52-307

  • Posted by alan on September 18, 2017 6:22am:

    Thank you for your time- we contract our labor with small installation companies for all our work including jobs pertaining to remodeling. Q? who pays the sales tax on labor for the remodeling jobs?

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