Arkansas sales tax guide

Sales tax is a tax paid to a governing body (state or local) on the sale of certain goods and services. Arkansas first adopted a general state sales tax in 1935, and since that time, the rate has risen to 6.5 percent. On top of the state sales tax, there may be one or more local sales taxes, as well as one or more special district taxes, each of which can range between 0 percent and 5 percent. Currently, combined sales tax rates in Arkansas range from 6.5 percent to 11.5 percent, depending on the location of the sale.

As a business owner selling taxable goods or services, you act as an agent of the state of Arkansas by collecting tax from purchasers and passing it along to the appropriate tax authority. Sales and use tax in Arkansas is administered by the Arkansas Department of Finance and Administration (DFA). 

Any sales tax collected from customers belongs to the state of Arkansas, not you. It’s your responsibility to manage the taxes you collect to remain in compliance with state and local laws. Failure to do so can lead to penalties and interest charges.

When you need to collect Arkansas sales tax

In Arkansas, sales tax is levied on the sale of tangible goods and some services. The tax is collected by the seller and remitted to state tax authorities. The seller acts as a de facto collector.

To help you determine whether you need to collect sales tax in Arkansas, start by answering these three questions:

1. Do you have nexus in Arkansas?
2. Are you selling taxable goods or services to Arkansas residents?
3. Are your buyers required to pay sales tax?

If the answer to all three questions is yes, you’re required to register with the state tax authority, collect the correct amount of sales tax per sale, file returns, and remit to the state.

Failure to collect Arkansas sales tax

If you meet the criteria for collecting sales tax and choose not to, you’ll be held responsible for the tax due, plus applicable penalties and interest.

It’s extremely important to set up tax collection at the point of sale — it’s near impossible to collect sales tax from customers after a transaction is complete.

The need to collect sales tax in Arkansas is predicated on having a significant connection with the state. This is a concept known as nexus. Nexus is a Latin word that means "to bind or tie," and it’s the deciding factor for whether the state has the legal authority to require your business to collect, file, and remit sales tax.

Nexus triggers

Sales tax nexus in all states used to be limited to physical presence: A state could require a business to register and collect and remit sales tax only if it had a physical presence in the state, such as employees or an office, retail store, or warehouse.

In June 2018, the Supreme Court of the United States overruled the physical presence rule with its decision in South Dakota v. Wayfair, Inc. States are now free to tax businesses based on their economic and virtual connections to the state, or economic nexus.

While physical presence still triggers a sales tax collection obligation in Arkansas, it’s now possible for out-of-state sellers to have sales tax nexus with Arkansas.

Out-of-state sellers

Out-of-state sellers with no physical presence in a state may establish sales tax nexus in the following ways:

Affiliate nexus: Having ties to businesses or affiliates in Arkansas. This includes, but isn’t limited to, the design and development of tangible personal property (goods) sold by the remote retailer, or solicitation of sales of goods on behalf of the retailer. Repealed, effective July 1, 2019.

Click-through nexus: Having an agreement to reward a person(s) in the state for directly or indirectly referring potential purchasers of goods through an internet link, website, or otherwise, and:

• Cumulative gross receipts from sales by the seller to purchasers in Arkansas who are referred to the seller by such agreements exceed $10,000 during the preceding 12 months.

Repealed, effective July 1, 2019.

Economic nexus: Having a certain amount of economic activity in the state. For sales made on and after July 1, 2019, a remote seller must register with the state then collect and remit Arkansas sales tax if the remote seller meets either of the following criteria (the economic thresholds):

• Total taxable sales in Arkansas of more than $100,000; or
• 200 or more separate transactions into the state in the current or previous calendar year.

Inventory in the state: Storing property for sale in the state. This includes merchandise owned by Fulfillment by Amazon (FBA) merchants and stored in Arkansas in a warehouse owned or operated by Amazon.

If you have sales tax nexus in Arkansas, you’re required to register with the DFA and to charge, collect, and remit the appropriate tax to the state.

For more information, see AR Code § 26-52-117 (2012), HB 1002, SB 576, and Arkansas Remote Seller FAQs.

Trailing nexus

Sales tax nexus can linger even after a retailer ceases the activities that caused it to be “engaged in business” in the state. This is known as trailing nexus. As of July 2019, Arkansas does not have an explicitly defined trailing nexus policy. 

Fulfillment by Amazon (FBA)

If you’re an active Amazon seller and you use Fulfillment by Amazon (FBA), you need to know where your inventory is stored and if its presence in a state will trigger nexus. FBA sellers can also download an Inventory Event Detail Report from Amazon Seller Central to identify inventory stored in Arkansas.

If you sell taxable goods to Arkansas residents and have inventory stored in the state, you likely have nexus and an obligation to collect and remit tax. To begin to understand your unique nexus obligations, check out our free economic nexus tool or consult with a trusted tax advisor.

Sourcing sales tax in Arkansas: which rate to collect

In some states, sales tax rates, rules, and regulations are based on the location of the seller and the origin of the sale (origin-based sourcing). In others, sales tax is based on the location of the buyer and the destination of the sale (destination-based sourcing). 

Arkansas is a destination-based state. This means you’re responsible for applying the sales tax rate determined by the ship-to address on all taxable sales.

After determining you have sales tax nexus in Arkansas, you need to register with the proper state authority and collect, file, and remit sales tax to the state. We get a lot of questions about this and recognize it may be the most difficult hurdle for businesses to overcome. Avalara Licensing can help you obtain your Arkansas business license and sales tax registration.

How to register for an Arkansas seller's permit

You can register for an Arkansas seller’s permit online through the DFA. To apply, you’ll need to provide the DFA with certain information about your business, including but not limited to:

• Business name, address, and contact information
• Federal EIN number
• Date business activities began or will begin
• Projected monthly sales
• Projected monthly taxable sales
• Products to be sold

Cost of registering for an Arkansas seller's permit

The cost to register for a sales tax permit in Arkansas is $50.

Acquiring a registered business

You must register with the Arkansas Department of Finance and Administration if you acquire an existing business in Arkansas. The state requires all registered businesses to have the current business owner’s name and contact information on file.

Streamlined Sales Tax (SST)

The Streamlined Sales and Use Tax Agreement (SSUTA), or Streamlined Sales Tax (SST), is an effort by multiple states to simplify the administration and cost of sales and use tax for remote sellers. Remote sellers can register in multiple states at the same time through the Streamlined Sales Tax Registration System (SSTRS).

Arkansas became a full member of the SST on January 1, 2008.

Once you've successfully registered to collect Arkansas sales tax, you'll need to apply the correct rate to all taxable sales, remit sales tax, file timely returns with the Arkansas Department of Finance and Administration, and keep excellent records. Here’s what you need to know to keep everything organized and in check.

How you collect Arkansas sales tax is influenced by how you sell your goods:

Brick-and-mortar store: Have a physical store? Brick-and-mortar point-of-sale solutions allow users to set the sales tax rate associated with the store location. New tax groups can then be created to allow for specific product tax rules.

Hosted store: Hosted store solutions like Shopify and Squarespace offer integrated sales tax rate determination and collection. Hosted stores offer sellers a dashboard environment where Arkansas sales tax collection can be managed.

Marketplace: Marketplaces like Amazon and Etsy offer integrated sales tax rate determination and collection, usually for a fee. As with hosted stores, you can set things up from your seller dashboard and let your marketplace provider do most of the heavy lifting.

Mobile point of sale: Mobile point-of-sale systems like Square rely on GPS to determine sale location. The appropriate tax rate is then determined and applied to the order. Specific tax rules can be set within the system to allow for specific product tax rules.

Arkansas sales tax collection can be automated to make your life much easier. Avalara AvaTax seamlessly integrates with the business systems you already use to deliver sales and use tax calculations in real time.

Tax-exempt goods

Some goods are exempt from sales tax under Arkansas law. Examples include prescription drugs, purchases made with food stamps, and some farming equipment.

We recommend businesses review the laws and rules put forth by the Arkansas Department of Finance and Administration to stay up to date on which goods are taxable and which are exempt, and under what conditions.

Some customers are exempt from paying sales tax under Arkansas law. Examples include government agencies, some nonprofit organizations, and merchants purchasing goods for resale.

Sellers are required to collect a valid exemption or resale certificate from buyers to validate each exempt transaction.

Misplacing a sales tax exemption/resale certificate

Arkansas sales tax exemption and resale certificates are worth far more than the paper they’re written on. If you’re audited and cannot validate an exempt transaction, the Arkansas Department of Finance and Administration may hold you responsible for the uncollected sales tax. In some cases, late fees and interest will be applied and can result in large, unexpected bills.

Sales tax holidays

Sales tax holidays exempt specific products from sales and use tax for a limited period, usually a weekend or a week. Approximately 17 states offer sales tax holidays every year. 

As of July 2019, Arkansas has the following tax holidays scheduled:

• Back to school, August 3–4, 2019
  • Clothing priced less than $100
  • Clothing accessories and equipment priced less than $50
  • School supplies (no price restriction)

            Applies to state and local sales tax

You're registered with the Arkansas Department of Finance and Administration and you've begun collecting sales tax. Remember, those tax dollars don't belong to you. As an agent of the state of Arkansas, your role is that of intermediary to transfer tax dollars from consumers to the tax authorities.

How to file

Once you’ve collected sales tax, you’re required to remit it to the Arkansas Department of Finance and Administration by a certain date. The Arkansas Department of Finance and Administration will then distribute it appropriately.

Filing an Arkansas sales tax return is a two-step process comprised of submitting the required sales data (filing a return) and remitting the collected tax dollars (if any) to the DFA. The filing process forces you to detail your total sales in the state, the amount of sales tax collected, and the location of each sale.

The Arkansas DOR does not send form ET-1 to taxpayers and the form is not offered online. Filers may call (501)682-7104 to request the form, but filing sales and use tax returns online through the Arkansas Taxpayer Access Point (ATAP) is recommended.

Filing frequency

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. See the filing due dates section for more information.

Arkansas sales tax returns and payments must be remitted at the same time; both have the same due date.

Online filing

You may file directly with the DFA by visiting their site and entering your transaction data manually. This is a free service, but preparing Arkansas sales tax returns can be time-consuming — especially for larger sellers.

Using a third party to file returns

To save time and avoid costly errors, many businesses outsource their sales and use tax filing to an accountant, bookkeeper, or sales tax automation company like Avalara. This is a normal business practice that can save business owners time and help them steer clear of costly mistakes due to inexperience and a lack of deep knowledge about Arkansas sales tax code.

Filing when there are no sales

Once you have an Arkansas seller's permit, you’re required to file returns at the completion of each assigned collection period regardless of whether any sales tax was collected. When no sales tax was collected, you must file a "zero return.”

Failure to submit a zero return can result in penalties and interest charges.

Closing a business

The DFA requires all businesses to "close their books" by filing a final sales tax return. This also holds true for business owners selling or otherwise transferring ownership of their business.

Timely filing discount

Many states encourage the timely or early filing of sales and use tax returns with a timely filing discount.

As of July 2019, the DFA offers a 2 percent discount for timely filing, with a maximum of $1,000 per month. Local jurisdictions may also allow a 2 percent discount, with a maximum of $4,000 per city and county.

It's important to know the due dates associated with the filing frequency assigned to your business by the Arkansas Department of Finance and Administration. This way you'll be prepared and can plan accordingly. Failure to file by the assigned date can lead to late fines and interest charges.

The DFA requires all sales tax filing to be completed by the 20th day of the month following the tax period. Below, we've grouped Arkansas sales tax filing due dates by filing frequency for your convenience. Due dates falling on a weekend or holiday are adjusted to the following business day.

NOTE: Filing due dates adjusted for weekends or holidays indicated by * in the tables below.

Filing an Arkansas sales tax return late may result in a late filing penalty as well as interest on any outstanding tax due. For more information, refer to our section on penalties and interest.

In the event an Arkansas sales tax filing deadline was missed due to circumstances beyond your control (e.g., weather, accident), the DFA may grant you an extension. However, you may be asked to provide evidence supporting your claim.

Hopefully you don't need to worry about this section because you're filing and remitting Arkansas sales tax on time and without incident. However, in the real world, mistakes happen.

If you miss a sales tax filing deadline, follow the saying, “better late than never,” and file your return as soon as possible. Failure to file returns and remit collected tax on time may result in penalties and interest charges, and the longer you wait to file, the greater the penalty and the greater the interest.

If you’re in the process of acquiring a business, it’s strongly recommended that you contact the DFA and inquire about the current status of the potential acquisition. Once you've purchased the business, you’ll be held responsible for all outstanding Arkansas sales and use tax liability.

If you’re collecting sales tax from Arkansas residents, you’ll need to consider how to handle taxes on shipping and handling charges.

Taxable and exempt shipping charges

Arkansas sales tax generally applies to delivery, freight, transportation, shipping, and handling charges for taxable sales, whether separately stated or included. Delivery charges for exempt sales are generally exempt.

If a shipment includes both taxable and exempt property, tax applies to the percentage of the delivery charge allocated to the taxable property.

There are exceptions to almost every rule with sales tax, and the same is true for shipping and handling charges. Specific questions on shipping in Arkansas and sales tax should be taken directly to a tax professional familiar with Arkansas tax laws.