Arkansas Sales Tax Guide
Chapter 8: Understanding Arkansas sales tax rules for shipping & handling
In the prior chapters, we’ve covered many fundamental sales tax management concepts. However, in our connected world, sellers can bank on shipping most orders. If you have customers in Arkansas, you will need to understand how and when to collect sales tax on those shipping costs. As with all state level taxes, every state has their own way of doing things. Arkansas has some complex rules regarding taxation of shipping and handling, and if you don’t pay attention, you may get it backward.Is Shipping Taxable in Arkansas?
Unlike many other states, Arkansas lumps shipping fees in with the total on which sellers are required to collect and remit sales and use taxes. Put another way, you must charge sales tax on the invoice total at the bottom of the page, even if you break out shipping on a separate line and even if you charge your customer just exactly what you pay for shipping.
The only exception to this rule is when your customer pays the carrier directly for shipping. If you use your customer’s UPS account to ship their order, then there is no need to collect sales tax. If you ship using your UPS account, you have to charge sales tax on the shipping amount.What About Handling Charges?
No surprise here: If you charge a handling fee, whether it’s separate or combined with your shipping charge, it’s subject to sales tax in Arkansas. So go ahead and charge a flat rate for shipping and handling. The Arkansas Department of Finance and Administration doesn’t care.The Exception to the Rule: Tax-Exempt Purchases
If you are shipping a tax-exempt order in Arkansas, your shipping and handling are also exempt from taxes.
If you ship a package in which a portion of the order is tax-exempt and a portion is subject to sales taxes, things get more complicated. You will have to pay sales tax on the portion of the shipping charge that applies to the taxable part of the order.
The Arkansas Department of Finance allows businesses to choose between two different methods of calculating how much of the shipping is for taxable goods (and therefore taxable) and how much is tax-exempt. The first option is to base the percentage on the portion of the charges that are tax-exempt. For example, if you ship $40 of tax-exempt goods and $60 of taxable goods, you would charge sales tax on 60 percent of the shipping cost. The second method is to base your percentage on the relative weights of the taxable and tax-exempt parts of the package, which might give you a very different calculation.
While calculating taxability of shipping costs based on weight may be more accurate, if the state aims to collect tax on the portion of the shipping that relates to taxable items, using the cost proportion method might be simpler. Either way, you are in compliance with Arkansas sales tax law.Arkansas Is An Odd State Out
A representative from the Arkansas Department of Finance and Administration sums it up like this: “The general rule is that shipping and handling charges are included within the taxable base on the property to be sold if the shipping charges are included as part of the seller’s price.”
If a customer makes a purchase online and pays an additional fee for shipping, Arkansas imposes sales tax on the shipping charges in addition to the purchase price. If the shipping charges are paid separately to the shipping company, however, you are not required to pay taxes on the separate shipping costs.”
If you have nexus in multiple states and most of them don’t require you to collect sales taxes on shipping as long as it’s a separate charge, what do you do about Arkansas? The nit-picky rules and differing logic of sales tax laws from state to state can give anyone a headache. But sales tax compliance is easy when you automate with effective tax-management software.