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Should I Be Collecting Arkansas Sales Tax?

Arkansas Sales Tax is the most confusing tax in the most confusing state. Should you be charging sales tax?

Sales Tax law applies to You

I am always surprised at the number of people who come to me who have no idea that they should be charging Arkansas Sales Tax in their business. Even if you are a one-person business or just started your business last week, you are responsible for collecting sales tax from your customers and then sending it into the state. That is in two parts for a reason. I have had a few people that were collecting sales tax from their customers and keeping the money or spending it like it was free money. I also see a lot of confusion over annual Income Tax filing and monthly Sales Tax filing. I am not kidding when I say that more than one person thought I took care of “all the Sales Tax stuff” for them when I filed their personal income taxes in the Spring.

Since no one teaches this in school, I’m going to start with the very basics.

What is Sales Tax and how does it work?

All but five US states collect Sales Tax It is the biggest inflow of cash for the state’s general budget. Sales tax is the state’s big paycheck. They are not joking around when they collect it. They are happy when the money is flowing in. If they find you are not following the law, they can close your business and seize your assets without notice. They show up one day with red tape and lock your doors. I have seen it happen. I saw them seize a business that was a single gumball machine. It is not pretty. Sales tax collection applies to you and your business, no matter how small or how new.

I’ve also had several clients that “just didn’t want to do that to their customers.” They made it seem like charging sales tax was bad business or treating their people badly. Did you ever walk into Big Box Store and say, “I can’t believe you are charging me sales tax”? No. No one does that. It is your job to collect sales tax. If you don’t ‘feel like’ collecting sales tax, the State may just ‘feel like’ shutting you down and taking your stuff. Sales tax is the law.

Sales tax is collected from your customers. You get to hang onto the money for a while. It is a nice cushion in your checking account. However, it is not your money, and you cannot spend it. In Arkansas, all the tax you collect in one month is due to the State on 20th of the following month. If you send everything on time, you get to keep 2% of what you collected. You are doing the State’s work and you are being paid to do it. It is not a bad deal.

What about County and City tax?

Most counties and cities in Arkansas also charge sales tax. Most of the county and city taxes are reported on the same form and sent with the State tax. You collect sales tax based on where the transaction or service takes place (if in-person) or where the products were delivered. You generally do not collect sales tax if the transaction or delivery was in another state. If you have a food truck or provide on-site services, you collect tax for each location.

Additionally, some cities have additional taxes such as Fayetteville’s Hotel, Motel, & Restaurant tax, Bentonville’s Advertising and Promotion tax, and Eureka Springs’ CAPC tax. These taxes are collected from the customer at the same time but are sent into the city separately and with separate forms.

If you think this is complicated, it is and I am only scratching the surface of the laws.  If you are in business anywhere in Arkansas, you need to check on the sales tax due in every location where you do business. Check with an Enrolled Agent (like me) or call the city accounting office where you are doing business.

Your business doesn’t pay sales tax

This confuses so many people because they collect sales tax a dollar or two at a time and then they write a check for $2000 every month. You are not paying $2000 a month in taxes. Your customers are paying it. They are paying it on top of what they are paying you. You get to collect and hold the money, but it was not your money in the first place. That money comes out of your account every month, but you are not paying it with your money.

Also, Do not confuse filing and paying your personal and business income tax every Spring with filing and remitting the sales tax you collected. They are not the same thing. But, to make it even more confusing, both income tax and sales tax are sent to the same department in Arkansas and most other states.

What is taxable?

First, all tangible things are taxable. That means anything you can pick up and sell. Food, clothes, art, personal care items, vehicles, and any kind of products. If you are selling things, you are required to collect sales tax.

Second, many services are taxable in Arkansas and have been since 2008. I still have many clients not charging sales tax properly on taxable services.
Here is a basic list of taxable services in Arkansas

  • Temporary Lodging (including AirBnB and Camping)
  • Towing
  • Pest Control
  • Alarm Services
  • Vehicle Storage and Parking
  • Locksmithing / pop-a-lock
  • Kenneling and Grooming Pets
  • Photography
  • Printing
  • Coin-operated machines
  • Dues or Fees of any kind
  • Tickets or Admission of any kind (door fees, cover charges)
  • Tanning, Electrolysis, Tattoos, and Piercing
  • *Cleaning anything (houses, rooms, jewelry, cars, anything)
  • *Trash Removal
  • *Installing or repairing anything (furniture, appliances, machinery, tools, flooring, etc)
  • *Lawn care

Exceptions:

* Cleaning, Repairing, or Installing anything, and removing trash in the ordinary course of new building construction is not taxable.
* Removing Debris in the ordinary course of lawn care or tree or shrub care is not taxable.
* Residential Lawn mowing for single-family, owner-occupied homes is not taxable. Application of products and installation of landscaping is always taxable.
* If you are selling vehicles that require a tag and be driven on the road, you do not collect the sales tax. The customer pays it when they get their tag.

More Taxes

This is not a comprehensive list. There are additional taxes on tourism, lodging, alcohol, aviation, fuel, and many other industries. Groceries are taxed at a lower rate than other items and not all food is considered groceries. The sales tax laws in Arkansas are a dark and twisty maze and it is easy to get tripped up and make a mistake.

How do I get started collecting sales tax?

In Arkansas, you pay a one-time $50 fee to the state to get your Sales Tax Permit. It is 100% online at ATAP.Arkansas.gov. Start by clicking ‘Register New Business’. You will need a copy of your City Business License and your business lease if you do not operate out of your home.

You will then need to have a way to calculate the proper sales tax on your sales. Most credit card processing systems offer a point-of-sale system that you can set up to record and collect the proper tax. This is not something you want to “wing” and spend hours at the end of every month figuring out what you collected in sales tax. You need a clear system so you can produce a report for the state every month.

Talk to a tax professional, CPA, or Enrolled Agent today to help you get set up and correctly charging sales tax to your customers.

 

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