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Arkansas Waivers of Statute of Limitations: No, Thank You - Unless…

author photo of B.J. Pritchett

Generally, when the state of Arkansas initiates an audit, before the audit even starts - tax auditors will often push the taxpayer to sign a waiver of statute of limitations. Such a waiver allows the auditor to in effect stop the statute of limitations clock. The auditor will then select a future date for the audit period, which will allow the auditor plenty of time to complete their listing of exceptions.

If a taxpayer signs the waiver, the interest clock starts to tick – and interest (if owed) starts to accumulate. Arkansas’ interest is imposed using the Julian calendar at an interest rate of 10% per annum. (The first month of the first year is already at 30%.) Signing a waiver to extend the period for which an assessment can be issued only increases the potential interest the taxpayer may need to pay upon completion of the audit.

As previously discussed in my “Arkansas Statute of Limitations - and How It's Unique” post - the statute of limitations in Arkansas is 3 years unless the taxpayer tax is understated by 25% or more in the first three years, then the state of Arkansas can extend the audit to six years. The tax auditor, however, can only assess tax in the months in years 4, 5 and 6 that are understated by 25% or more. The tax auditor will assess every month in the first three years if understated at all.

The only reason to sign a waiver in Arkansas is when it is in the taxpayer’s best interest. For example, if the records are not on site or available for review, signing a waiver may provide a taxpayer additional time to locate and/or deliver records to the facility. Otherwise, my advice is to simply say “no, thank you”.

After the auditor has finished their listing of potential exceptions, now would be the time to request a waiver of statute of limitations and ONLY extend the period of time 30 to 60 days. This time can be used by the taxpayer to review the listing and remove any items due to data input or math errors, exemptions claimed, non-taxable transactions or services and other potential errors listed.

The key is to be in control of the audit process and not allow the auditor to drive the audit. Only sign waivers when it is in the taxpayer’s best interest, not because the auditor has requested it.

So remember “no, thank-you” - simple but important words for Arkansas taxpayers.

Is your business facing an Arkansas audit? If so, please feel free to contact me with any questions or concerns.

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:

NOTE: All blog content, comments, and participation subject to disclaimer at bottom of page.

Comments

4 Responses to Arkansas Waivers of Statute of Limitations: No, Thank You - Unless…

  • Posted by Debbie on September 13, 2018 10:27am:

    We are planning to retire in Arkansas next year. I am already packing family heirlooms, collectibles and flea market finds, garage and estate sales treasures some as far back as my childhood. I am a pack rat and so is my husband. We have also inherited material belongings from both set of parents since they have passed. Needless to say we do not have receipts for most of it. Some I do, again Thank God I am a PACK RAT! We are unsure of the size home we will be purchasing. Due to the unknown, what do you recommend is the best way to downsize collections, etc. after we move? Some of these items are quite pricey, such as FRAMED PHOTOGRAPHY, APPRAISED BY PROFESSIONAL APPRAISERS.
    OTHER ITEMS MIGHT INCLUDE IF I CAN'T SELL BEFORE I LEAVE ANTIQUE CHINA AND CRYSTAL IN MINT CONDITION. OTHER ITEMS COULD BE ANYTHING FROM ANTIQUE FISHING LURES TO ITEMS I HAVE MADE FROM ANTIQUE PIECES AND TRANSFORMED INTO A DIFFERENT ITEM. I CREATE JEWELRY FROM UNUSUAL ITEMS AND AM AM AN AVID ROCK GARDENER RAISING PLANTS AND CREATING ARRANGEMENTS WITH ROCKS. PLEASE ADVISE what would be the best thing for us to consider doing? I can't say I would do all these things. Perhaps some would be best done through a yard sale. Or online, but I'm sure that you have rules with that as well. Thank you for your help!

    • Posted by Author photo of B.J. Pritchettbjpritchett on September 19, 2018 2:32pm:

      Debbie,
      Your question spans so many different issues so let me break it down. If you are in the business of selling tangible personal property, you must register with the state of Arkansas to collect and remit taxes. And while you maybe selling second had tangible personal property, Arkansas provides a rule for just that.
      GR-50. EXEMPTIONS FROM TAX – SECONDHAND AND USED TANGIBLE PERSONAL PROPERTY:
      A. Gross receipts or gross proceeds derived from the sale of secondhand and used tangible personal property will be exempt only if both the following conditions listed below are met:
      1. Used property was traded-in to and accepted by the seller of tangible personal property as part of the purchase price of newly acquired tangible personal property. It is necessary that the gross receipts tax be collected and paid on the total consideration for the sale of the newly acquired tangible personal property in order to qualify for the exemption unless the sale of the newly acquired tangible personal property was otherwise exempt under other provisions of the
      Arkansas Gross Receipts Act; and
      2. a. Arkansas gross receipts tax was collected and paid on the total amount of consideration for the sale of the newly acquired tangible personal property without any deduction or credit for the value of the used tangible personal property; or.,
      Example: Seller of boats sells a new boat to a customer. The customer trades in his old boat and pays sales tax to seller on the full purchase price of the new boat without any deduction for the trade-in. When seller sells the traded-in used boat, he is not required to collect sales tax.
      b. The new personal property was originally exempt from tax under the provisions of the Arkansas Gross Receipts Act.
      Example: Seller of farm equipment sells a new tractor to a farmer. The farmer trades in his old tractor that was purchased tax exempt under the gross receipts tax exemption for farm equipment and machinery. When the seller sells the used tractor, he is not required to collect sales tax.
      B. The foregoing does not apply to transactions involving
      (i) used motor vehicles or trailers,
      (ii) used mobile homes, or
      (iii) used aircraft, but is applicable to boats, motors, appliances, etc. (See GR-13, GR-14, and GR-15.1.)
      C. Property purchased by a seller and not taken as a trade-in does not qualify for the exemption.
      Source: Ark. Code Ann. § 26-52-401(22)

      If, however, you sell the property at a garage sale you can only hold a garage sale three times in the year before being engaged in business. Arkansas passed that law a few years ago. They did it in response to Non-Profit Organizations to limit their consistent bake sales, spaghetti dinners, etc.

      Hope this helps!

  • Posted by Author photo of B.J. Pritchettbjpritchett on August 7, 2018 4:30pm:

    Unfortunately, yes it is. While you might thinking working for the government right of ways would be not subject to tax, Arkansas taxes mowing services and specifically addresses right-of-ways.

    Arkansas Rule GR-9.2:
    GR-9.2. SERVICES SUBJECT TO TAX – LAWN CARE AND LANDSCAPING:
    A. Any person engaged in the business of providing lawn care of nonresidential
    property or landscaping services of both residential and nonresidential property is
    required to collect and remit sales tax on the gross receipts derived from these
    services. The business is required to obtain a sales tax permit. All materials that
    remain in or on the customer’s property should be purchased tax exempt as a sale
    for resale. Examples are fertilizer, weed killer, grass seed, sod, plants, trees, or
    shrubs. Materials used or consumed by the business may not be purchased exempt.
    Examples are gasoline, oil, cleaning materials, uniforms, tools, mowers or other
    equipment used or consumed by the business.
    B. The business will collect state and local sales tax on the total consideration for
    landscaping services or nonresidential lawn care, whether provided as part of a
    general contract for building construction or as a separate agreement with the
    landowner. The business will collect the tax from the party with whom it contracts
    for the service, including general contractors, on the total contract cost including the
    cost of plant materials. A business which has its own nursery is not required to
    report tax on plant material withdrawn from stock, but will collect tax on the sale of
    the material to its customers.
    C. DEFINITIONS.
    1. “Landscaping” means the installation, preservation or enhancement of ground covering by planting trees, bushes, shrubbery, grass, flowers and other types of decorative plants. “Landscaping” does not include site preparation, cutting and
    filling, leveling, tree trimming or tree removal, or clearing a site of bushes and trees. “Landscaping” does include sodding, seeding and planting, as well as installing items such as landscape timbers, edging, planters, or similar items. Landscaping performed on highway easements and right-of-ways is taxable.
    Landscaping is taxable whether it is done for decorative purposes or non-decorative purposes such as erosion or sediment control.

  • Posted by Robert on August 7, 2018 4:56am:

    Working as a sub contractor to provide mowing service for right-a-way contractor. Is my income sales taxable? Thanks for your guidance in this issue.

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