Are Professional Services Taxable in Arkansas?
Unravel Arkansas sales tax rules for professional services. Gain insight into the state's specific approach to taxing services and its impact on your business.
Professional services encompass a wide range of activities that leverage specialized knowledge or skills, often requiring specific licensure or certification. In Arkansas, sales tax primarily applies to the retail sale of tangible personal property. Services are generally exempt from sales tax unless specifically listed as taxable in state statutes. This enumerated approach means only services explicitly identified are subject to sales tax, establishing a distinct framework for businesses.
Understanding Arkansas Sales Tax on Services
Arkansas employs an “enumerated services” model for sales tax, meaning a service is only subject to taxation if it is expressly itemized within state statutes. This contrasts with some other states that apply a blanket sales tax to most services unless specifically exempted. The foundational principle in Arkansas dictates that while tangible personal property is broadly taxable, services are not, unless they appear on the state’s specific list of taxable services.
The state sales tax rate is 6.5% of gross receipts, though local governments can impose additional sales and use taxes, potentially increasing the combined rate significantly. This tax is imposed on the retailer, who is responsible for collecting and remitting it to the Arkansas Department of Finance and Administration. Businesses must understand this distinction between tangible goods and services, as it forms the basis for sales tax obligations in the state.
Professional Services Subject to Tax
While many professional services are exempt, Arkansas law specifically enumerates certain services that are subject to sales tax. These taxable services often involve specialized skills or are tied to the maintenance and repair of tangible personal property.
For instance, the installation, alteration, addition, cleaning, refinishing, replacement, and repair of various items are taxable. These include motor vehicles, aircraft, farm machinery, electrical appliances, furniture, and office equipment. This category requires businesses to collect sales tax on both labor and any parts sold during such services.
Beyond repairs and maintenance, several other services are explicitly taxable:
Body piercing, tattooing, and electrolysis services.
Pet grooming and kennel services.
Dry cleaning and industrial laundry services.
Security and alarm monitoring services.
Locksmith services.
Wrecker and towing services.
Lawn care and landscaping services.
Cleaning or janitorial work.
Pool cleaning and servicing.
Indoor tanning.
Sale of service contracts, maintenance agreements, and extended warranties covering these taxable services.
Professional Services Not Subject to Tax
In Arkansas, if a professional service is not explicitly listed in the state’s tax statutes, it is generally exempt from sales tax. This broad exemption covers many services typically associated with specialized knowledge and direct client interaction.
For example, common professional services such as legal counsel, accounting services, and medical procedures like surgeries or physical therapy are not subject to sales tax. This also extends to consulting services, educational services, and services provided by nonprofit organizations.
Architectural and engineering services are also generally exempt unless they involve the sale of tangible personal property. Similarly, advertising services provided by advertising agencies, encompassing artwork, concepting, designing, and other creative services, are not subject to gross receipts tax.
Important Considerations for Service Providers
Service providers in Arkansas must carefully assess the nature of their transactions to ensure sales tax compliance. One significant consideration involves mixed transactions, where a professional service is bundled with the sale of tangible personal property.
If a service is deemed necessary to complete the sale of tangible personal property, its charges may become taxable, even if the service would be non-taxable on its own. For example, if a consultant sells a report that is integral to their advice, the entire transaction might be subject to tax if not properly itemized.
Accurate classification is paramount; if a transaction is not itemized, the entire amount may be subject to sales tax, whereas itemizing taxable and non-taxable components can limit tax collection to only the taxable portions.
The location where the service is performed or the benefit is received can impact taxability, as Arkansas operates as a destination-based tax state. This means sales tax rates are determined by the buyer’s location rather than the seller’s. For services purchased from out-of-state vendors for use in Arkansas, use tax may apply if the out-of-state vendor does not collect Arkansas sales tax.