As a business, do I need to collect Arkansas sales tax?
Businesses are required to collect sales tax in Arkansas if they have a sales tax nexus in the state. This includes having a physical presence or reaching a specific sales level, which establishes an economic nexus. This is why understanding Arkansas state sales tax obligations is crucial for compliance.
Do I have a physical nexus in Arkansas?
A physical nexus in the state of Arkansas is established if your business has a physical presence in the state. Following are examples of physical presence that can trigger a physical nexus in the state of Arkansas:
- Contractors (customer facing roles): "Contractors" are usually considered independent entities or individuals. They operate their own businesses and are not typically under the direct control of the hiring company. The presence of contractors engaged in customer-facing roles, such as marketing, sales, support, or servicing, usually triggers a physical nexus in the state.
- Employees (customer facing roles): In the context of establishing a physical nexus, "employees" refer to individuals who work for your business and are physically present in the respective state. Employees engaged in customer-facing roles, such as marketing, sales, support, or servicing, usually trigger a physical nexus in this state.
- Office: An "office" in the context of establishing a physical nexus refers to a physical location or workspace that a business maintains within the respective state. This could include a dedicated facility where administrative tasks are carried out, meetings are conducted, or business operations are managed.
- Warehouse: A "warehouse" in the context of establishing a physical nexus refers to a physical facility used for storing goods, inventory, or products within the respective state. Businesses may utilize warehouses for various purposes, such as storage, distribution, or fulfillment of orders.
How do I know if I have an economic nexus in Arkansas?
An economic nexus in Arkansas is determined by your sales volume. If the annual sales of your enterprise exceed the given threshold in Arkansas, you must register for an Arkansas sales tax permit, collect tax on sales shipped to Arkansas, and remit that sales tax to the state revenue authorities.
In Arkansas, an economic nexus is established for your enterprise if your sales in the state exceed 100000 OR number of transactions exceed 200, based on the sales from the Current or Previous Calendar Year.
While calculating the sales or number of transactions for determining economic nexus, Arkansas requires transactions made through marketplaces, like Amazon, eBay, etc. to be excluded. Transactions made for resale purposes should be excluded while determining whether a business has exceeded the Arkansas economic nexus threshold. Finally, the sale of products that are non-taxable in Arkansas should be excluded while determining the establishing of nexus in Arkansas.
For an in-depth understanding, read our comprehensive guide on economic nexus reference periods.
Which goods are taxable in Arkansas?
For businesses in Arkansas, local sales tax is applicable on the sale of all tangible personal property sold at retail in the state. Services are sometimes taxable like landscaping services and commercial lawn care services, sales of gas, water, electricity, most solid waste disposal, telephone and prepaid telecommunications and repair services.
Businesses need to stay updated on current tax information as well as the associated obligations and exemptions to avoid any compliance issues.
What items are exempt from Arkansas sales tax?
Arkansas exempts several items from sales tax- prescription drugs, purchases made with food stamps, dental appliances sold by or to dentists or other professionals, Timber harvesting equipment, farm equipment or machinery, Natural gas used as fuel in the process of manufacturing glass, Natural gas and electricity used in the manufacture of new motor vehicle tires, Gas produced from biomass in a facility meeting federal eligibility requirements and sold to an entity for the purpose of generating steam, hot air or electricity to be sold to the gas producer, to name a few.
Understanding these exemptions is vital for businesses to calculate sales tax accurately in Arkansas. If you are uncertain about the tax status of specific items, seek guidance from professionals at Galvix.
Is SaaS taxable in Arkansas?
In Arkansas, the sales tax laws consider certain types of software, SaaS, and related services as taxable. These include:
- Software delivered on tangible media: Software distributed and obtained through physical means, such as CDs or DVDs.
- SaaS - On premises: This refers to Software as a Service installed and operated from the customer's in-house server and computing infrastructure rather than a third-party server.
However, sales tax laws change frequently, so it is vital to remain up-to-date with the latest regulations on the sales tax of Arkansas for digital goods. Checkout our latest blog to learn more about SaaS sales tax.
What is the deadline to obtain a Arkansas sales tax permit after establishing a nexus?
If a business has a physical nexus in Arkansas, it must obtain a sales tax permit from the Arkansas Department of Finance and Administration and start collecting sales tax on transactions as on the date of establishing the physical nexus. Businesses that establish an economic nexus in Arkansas need to obtain a sales tax permit and start collecting taxes, latest by next transaction, from the date they establish the economic nexus.
It is important to obtain the sales tax permit and start collecting taxes as per the deadlines mentioned above, in order to avoid back taxes and penalties.
How can one get a Arkansas sales tax permit?
To obtain a sales tax permit in Arkansas, businesses need to register with the Arkansas Department of Finance and Administration. This process is streamlined and can be completed online through the online portal provided by Arkansas Department of Finance and Administration. To comply with Arkansas's sales tax laws, businesses need to get a tax permit.
To get a sales tax permit in Arkansas, you need to provide detailed information about the business, such as the type of business, FEIN, personal details of the owner, business registration, nature of business activities, and several others on the Arkansas Department of Finance and Administration website. You will then get a sales tax number. This number is important for collecting, reporting, and paying the sales tax to the state government.
For detailed instructions and guidance on the registration process, connect with the experts at Galvix.
How should a business collect sales tax in Arkansas?
Businesses in Arkansas must collect sales tax from customers on relevant transactions. The collected tax must align with the Arkansas sales tax rate, which varies by location. Enterprises should regularly verify the sales tax rates to ensure accurate collection. To learn the best practices, explore our sales tax compliance guide.
Where can I file my Arkansas sales tax return?
You can file the Arkansas sales tax return by visiting the online portal provided by the Arkansas Department of Finance and Administration at: https://atap.arkansas.gov/_/.
When should a business file Arkansas sales tax return?
Businesses in Arkansas must file state sales tax returns periodically. The frequency, i.e., monthly, quarterly, or annually, is determined by the state based on the tax liability.
Typically, sales tax and use taxes is due monthly, with returns and remittances filed on or before the 20th day after month end for the previous month’s sales. However, businesses can request a different filing status based on their annual tax liability.
In general, the following are the filing deadlines for Arkansas, based on the assigned filing frequency to you by the state:
- Monthly Filing: 20th day after month end
- Quarterly Filing: 20th day after quarter end
- Yearly Filing: 20th day after year end
It’s crucial to adhere to the assigned schedule to avoid penalties.
How does Arkansas determine the sales tax filing frequency for my business?
The Arkansas Department of Finance and Administration will assign you a filing frequency. Typically, this is determined by the size or sales volume of your business. State governments generally ask larger businesses to file more frequently.
Are there any benefits if a business files Arkansas sales tax on time?
A 2% discount is offered, capped at $1,000 per month. This discount is applicable to local sales tax accounts, with a maximum of $1,000 per city and county reported.
What penalty is applicable if a business fails to file Arkansas sales tax?
Penalties are applicable if a business fails to file and pay sales tax before the due date in Arkansas. f you file your return late and owe taxes to the state, you'll typically face a failure-to-file penalty of 5% of the tax owed for each month or portion of a month you're overdue, with a maximum penalty of 35%. Conversely, if you file on time but fail to pay on time, you'll incur a failure-to-pay penalty of 1% per month on the unpaid taxes, also capped at 35%. The combined maximum penalty for both scenarios is 35% of the unpaid taxes. Furthermore, interest is charged at a rate of 10% per year on the outstanding balance. More details about this can be found here.
What are the key things to remember while filing sales tax in Arkansas?
While filing taxes in Arkansas, businesses must remember to account for sales tax holidays and potential tax discounts. Sales tax holidays offer temporary tax exemptions on specific items, and tax discounts may be available for timely filings during the reporting period. Staying updated on these can maximize compliance efficiency.
What is the sales tax on shipping in Arkansas?
Shipping charges follow a specific taxation rule: they are taxable if the products being shipped are taxable and exempt if the products are exempt. In cases where a shipment contains both taxable and exempt items, tax is typically applied only to the portion of the delivery charge allocated to the taxable items. The tax rate aligns with the Arkansas state sales tax rate applicable to the goods sold. Businesses should levy sales tax on shipping accurately for compliance. More details about this can be found here.