So let's start with Arkansas sales tax basics... First of all, Arkansas does not actually impose a sales tax. It imposes a gross receipts tax. The Arkansas Gross Receipts Tax is imposed on the total consideration for the value of the item/service received including any item/service associated with the taxable item/service such as freight, handling, insurance, surcharges, etc. If the freight, handling, insurance, surcharges are listed on the vendor’s invoice and are associated with the taxable item/service, these will all be subjected to the Arkansas Gross Receipts Tax.
Arkansas’ Gross Receipts Tax is commonly referred to a sales tax; however, be assured it is a gross receipts tax. It is also considered a “trust tax”. The state of Arkansas trusts the vendor to collect and remit the tax to the state on a monthly, quarterly or annual basis depending on the amount of tax reported during the year.
Arkansas Gross Receipts Tax: Some Interesting Quirks
* Arkansas is one of only a handful of states that allows the embedding of the sales tax into the price of the product. In other words, the vendor can charge a set price which includes the tax. If you’ve ever seen those commercials on television with the vendor stating “we’ll pay your sales tax for you” – in Arkansas, the vendor will pay the tax – of course, it may already be embedded in the price of the item/service.
* Arkansas also does not require a separate line item on the invoice for tax. Since the vendor can embed the tax in the price of the product, a customer would never see a separate line item for tax. It is not required by Arkansas law.
* The Gross Receipts Tax holds the vendor as the “taxpayer” in the state of Arkansas – not the customer/consumer. The taxpayer in the state is the vendor (who is entrusted to collect and remit the tax). If the vendor does not charge the tax to the customer, the vendor is held liable for the Gross Receipts Tax.
As you can tell from the above information, you certainly do not want to assume you understand Arkansas sales and use taxes. Knowing who is liable for the tax is the first step in knowing whether to pay the tax to the vendor or directly to the state of Arkansas. My next blog will discuss Arkansas Compensating Use Tax and who is liable for that tax.
If you have questions about Arkansas sales and use taxes, I invite you to post a question or comment below. Of course, don’t be surprised if I ask you five questions in return as knowing the facts always helps to identify the correct tax decision.
Other recent “Arkansas (AR)” posts by B.J. Pritchett, CMI:
- Procurement (Credit) Cards in a Tax Audit- Good or Bad?
- Consumer Use Tax vs Direct Pay in Arkansas: Key Differences
- Arkansas Waivers of Statute of Limitations: No, Thank You - Unless…
- Arkansas Local Taxes - Understanding the Local Tax Cap
- Arkansas Statute of Limitations - and How It's Unique