Arkansas enacts corporate tax changes and responds to Wayfair
TAX ALERT |
On April 9, 2019, Arkansas Gov. Asa Hutchinson signed Senate Bill 576, enacting a number of corporate tax provisions and adopting economic sales tax nexus provisions. A summary of the changes is below.
Corporate income tax
Corporate tax rate reduction
Arkansas currently imposes the corporate net income tax using the following tax brackets:
- First $3,000 at a rate of one percent
- Next $3,000 at a rate of two percent
- Next $5,000 at a rate of three percent
- Next $14,000 at a rate of five percent
- Next $75,000 at a rate of six percent
- Over $100,000 at a rate of 6.5 percent
Senate Bill 576 provides for a phased-in reduction of the top corporate tax rate from 6.5 percent to 5.9 percent as follows:
- Beginning Jan. 1, 2021, a top rate of 6.2 percent on income exceeding $100,000, and no change to the lower five tax brackets
- Beginning Jan. 1, 2022, a top rate of 5.9 percent on income exceeding $25,000, and no change to the first three brackets, but an elimination of the “next $75,000” bracket
The bill extends the net operating loss carryforward from five years to eight years for tax years beginning on Jan 1, 2020, and to 10 years for tax years beginning on Jan. 1, 2021 and thereafter.
Single-sales factor apportionment
For tax years beginning on or after Jan. 1, 2021, Arkansas adopts single-sales factor apportionment. Arkansas currently uses a three-factor apportionment formula with a double-weighted sales factor.
Sales and use tax
Senate Bill 576 enacts both remote seller nexus thresholds and marketplace provider provisions, effective July 1, 2019.
As of April 2019, a majority of states have responded to South Dakota v. Wayfair by providing guidance or adopting economic sales tax nexus thresholds. “Marketplace facilitator” provisions, which impose the sales tax collection obligation on the marketplace itself, are a focus of dozens of proposed bills in the 2019 state legislative sessions. At least a half-dozen states have enacted marketplace facilitator nexus as of the publication of this article, joining almost 10 states that had adopted the provisions before this year.
The legislation requires that remote sellers or a marketplace facilitators that sell or facilitate a sale of tangible personal property, taxable services, a digital code, or specified digital products for delivery into Arkansas shall collect and remit the applicable sales or use tax if in the previous calendar year or in the current calendar year, the remote seller or the marketplace facilitator had aggregate sales of tangible personal property, taxable services, digital codes, or specified digital products subject to Arkansas sales or use tax within the state or delivered to locations within the state exceeding: one hundred thousand dollars ($100,000) or two hundred (200) transactions.
The bill defines a "marketplace facilitator" as a person that facilitates the sale of tangible personal property, taxable services, a digital code, a digital magazine, or specified digital products by:
- Listing or advertising tangible personal property, taxable services, a digital code, a digital magazine, or specified digital products for sale in a forum; and
- Either directly or indirectly through an agreement or arrangement with a third party, collecting payment from a purchaser and transmitting the payment to the person selling the tangible personal property, taxable services, a digital code, or specified digital products, regardless of whether the person receives compensation or other consideration in exchange for the person's services in collecting and transmitting the payment;
The corporate tax rate reductions, NOL carryforward provisions and single-sales factor apportionment will generally benefit taxpayers anticipating the state tax reforms. Additionally, Arkansas becomes one of the last few states to respond to the Wayfair decision. Upcoming enforcement dates for economic sales tax nexus thresholds include June 1, 2019, for Idaho and Colorado, and July 1, 2019, for Arkansas, New Mexico, and Virginia. Taxpayers with questions about how these provisions may impact their business should speak to their tax advisers.