Corporate Income Tax
Corporations doing business in Arkansas are subject to tax on net income at the following rates:
The portion of income that exceeds each category is taxed at the next higher rate. For example, if a business has corporate net income of $125,000, the first $3,000 is taxed at 1%, the next $3,000 is taxed at 2% and so on. Only the $25,000 in excess of $100,000 is taxed at the maximum rate of 6.5%.
Corporations that are members of an affiliated group that file a federal consolidated corporate income tax return may elect to file an Arkansas consolidated corporate income tax return. Only those corporations in the federal affiliated group that have gross taxable income from sources within Arkansas are eligible.
Arkansas has adopted the provisions of Subchapter S of the Federal Internal Revenue Code of 1986 (Title 26, U.S.C., Sections 1361 through 1379).
Sales and Use Taxes
The Arkansas sales tax is 5.125 percent of the gross receipts from the sales of tangible personal property and some services. The tax is paid by the consumer at the point of final sale and is computed on the total consideration received without any deduction for expenses. Taxable services include sales of gas, water, electricity, telephone service and repair services. The Arkansas compensating use tax of 5.125 percent is levied on tangible personal property purchased from outside the state of Arkansas for use, storage, or consumption within the state of Arkansas.
Several exemptions from sales and use taxes exist. For a complete list, see the Arkansas Department of Economic Development (see ADED website. Sales and use tax credits may be offered through conditional incentives (see incentives section of Sherwood site).
Unemployment Insurance Tax
Every business in Arkansas pays an unemployment insurance tax. A business with no previous employment record in Arkansas is taxed at 3.6 percent on the first $9,000 of each employee's earnings until an employment record is established, usually within three to five years. The rate generally decreases to an average of 2.0 percent after an employment history is established.
Employers new to Arkansas can request a more favorable rate than the 3.6% by supplying the Arkansas Employment Security Division (ESD) with the company's quarterly unemployment insurance rate statements for the previous full three calendar years.
Corporate Franchise Tax
The Arkansas Franchise Tax is an annual tax imposed on Arkansas corporations for the grant of charter privileges and on non-Arkansas corporations for the privilege of doing business. For a corporation incorporated under the laws of the state of Arkansas, the franchise tax is calculated by multiplying the number of outstanding capital shares by the par value (if no par stock, $25 is used) of those shares, then multiplying by 0.0027.
For a corporation incorporated outside of Arkansas but authorized to do business in the state, the number of issued and outstanding capital shares is multiplied by the par value to obtain the total value. This value is multiplied by the percentage of assets applicable to Arkansas (Arkansas assets divided by total assets) to obtain the Arkansas capital stock. That figure is then multiplied by 0.0027 to obtain the franchise tax.
|Number of issued and outstanding capital shares||x||Par value;$25 if no par value||=||Total value of issued and outstanding capital stock|
|Total value of issued and outstanding capital stock||x||Percentage of assets applicable to Arkansas||=||Arkansas capital stock|
|Arkansas capital stock||x||0.0027||=||Franchise tax due|
Businesses locating in Arkansas do not have to disclose the total assets of their parent corporations. If a business is a U.S.-based corporation and is simply applying for authorization to do business in Arkansas, it need only supply a balance sheet of that U.S. Corporation. Corporations without authorized capital stock shall pay an annual tax of $109 regardless of valuation. No corporation shall pay a tax of less than $59 or more than $1,075,000.
Both the State of Arkansas and the City of Sherwood do not have a property tax; however, Pulaski County does collect property tax, which is the principal source of revenue for funding local public schools, roads, and libraries. Pulaski County property tax rates affecting the City of Sherwood stand at $50.80 per thousand. The tax is calculated based on 20 percent of the fair market value of real and personal property and the average annual value of merchants' stocks and/or manufacturers' inventories based on millage rates in individual school districts. Business firms and individuals are subject to annual county property tax on all real and personal property.
Personal Income Tax
Resident and nonresident individuals, estates, and trusts deriving income from within the state are subject to a tax on their net income at the following rates:
|$25,000 and over||7.0%|
To arrive at net taxable income, the taxpayer may elect to either itemize deductions or to use the standard deduction of $2,000 per taxpayer. (Married couples may deduct $2,000 per spouse.) Federal income tax is not deductible from income subject to Arkansas' personal income tax.
A credit is allowed resident individuals for the amount of income tax paid to any other state not to exceed what the tax would be on out-of-state income if added to the Arkansas income and calculated at Arkansas income tax rates.