Can You Deduct Sales Tax on a Vehicle Purchase in Arkansas?

Buying a vehicle comes with more than just the sticker price—taxes can add a significant cost. In Arkansas, sales tax on vehicles is an important consideration, and understanding potential deductions could help reduce the financial burden.

Tax deductions depend on various factors, including state and federal laws. Knowing the specifics in Arkansas ensures buyers avoid unnecessary costs and take advantage of any available savings.

Key Elements of Vehicle Sales Tax

Sales tax rates and rules vary based on where and how a vehicle is purchased. Understanding these details helps buyers plan for the full cost.

Standard Rate

Arkansas imposes a 6.5% state sales tax on most vehicle purchases, applying to both new and used cars. The tax is based on the total purchase price, excluding any trade-in value. However, vehicles purchased for less than $4,000 are exempt from state sales tax.

Sales tax is due at registration, which must be completed within 60 days of purchase at a local Department of Finance and Administration (DFA) Revenue Office. Late payments result in penalties. Vehicles bought from out-of-state dealers are still subject to Arkansas sales tax upon registration, even if tax was paid elsewhere.

Local Add-Ons

Cities and counties impose local sales and use taxes ranging from 0.25% to 3.5%, which can significantly increase the total tax rate.

For example, a vehicle purchased in a city with a 2% local tax and a county with an additional 1% tax results in a 9.5% total tax rate (6.5% state + 2% city + 1% county). Buyers can check rates using the Arkansas DFA’s Sales Tax Lookup Tool.

Some jurisdictions cap the taxable amount for local taxes, applying them only to the first $2,500 or $3,000 of the vehicle’s price, reducing the tax burden on higher-value purchases.

Types of Purchases

Sales tax rules vary based on how a vehicle is acquired.

– Dealership Purchases: Licensed dealerships collect and remit sales tax at the time of sale.
– Private-Party Sales: Buyers pay sales tax when registering the vehicle at the DFA Revenue Office.
– Leased Vehicles: Sales tax is paid on each monthly lease payment rather than the full purchase price upfront.

Certain vehicle types, such as trailers, motorcycles, and ATVs, may have different tax classifications. Farm-use vehicles may qualify for exemptions.

Document Requirements

Registering a vehicle in Arkansas requires specific paperwork depending on whether the purchase was from a dealership, a private seller, or out of state.

Dealership Purchases

New vehicles come with a Manufacturer’s Certificate of Origin (MCO), while used vehicles have a vehicle title. Buyers also receive a bill of sale, listing the purchase price, date of sale, and any trade-in credits. This document is required for tax calculations and must be submitted to the DFA.

Private-Party Sales

Buyers must obtain a signed certificate of title from the seller. If the vehicle is valued over $4,000, a notarized bill of sale is required. Additionally, buyers must complete an Application for Title and Registration (Form 10-381). If the vehicle had a lien, a Lien Release may be necessary.

Out-of-State Purchases

Buyers must present the original out-of-state title or MCO and may need a Vehicle Identification Number (VIN) verification if the vehicle was registered in a non-title state. Some states issue electronic titles, so Arkansas buyers may need to request a printed copy before completing registration. Arkansas insurance coverage is also required.

Gifted and Inherited Vehicles

For gifted vehicles, Arkansas requires a Gift Certification (Form 10-395) to confirm no payment was exchanged. While sales tax may be waived, registration fees still apply. Inherited vehicles require documentation such as a court order or affidavit of inheritance, depending on how the estate was settled.

Potential Deductions

Vehicle sales tax can be a significant expense, but certain deductions may help offset the cost.

Federal Itemized Deduction

Taxpayers who itemize deductions on IRS Form 1040, Schedule A can include sales tax paid on a vehicle purchase under the state and local tax (SALT) deduction. However, this deduction is subject to a $10,000 cap ($5,000 for married individuals filing separately), which includes all state and local income, property, and sales taxes combined.

For those with high property tax bills, this cap may limit the benefit of deducting vehicle sales tax.

Business Deductions

Business owners and self-employed individuals may deduct sales tax on vehicles used for business purposes.

– Section 162 Deduction: If a vehicle is used exclusively for business, the full sales tax amount may be deductible. For mixed-use vehicles, only the business portion is deductible. Proper documentation, such as mileage logs, is required.
– Section 179 and Bonus Depreciation: Businesses purchasing qualifying vehicles may deduct the cost, including sales tax, in the year of purchase. In 2024, the Section 179 deduction limit is $1,220,000, with a phase-out starting at $3,050,000. Bonus depreciation allows for an immediate 60% deduction of the vehicle’s cost.

Trade-In Reductions

Arkansas applies sales tax only to the difference between the purchase price of a new vehicle and the trade-in value of the old one. For example, if a buyer purchases a car for $30,000 and trades in a vehicle worth $10,000, sales tax is only applied to the $20,000 difference.

Penalties for Non-Compliance

Failing to meet Arkansas’s tax and registration requirements can lead to fines and legal consequences.

– Late Payment Penalty: If sales tax is not paid within 60 days of purchase, a 10% penalty is added to the unpaid amount.
– Interest Charges: Interest accrues monthly at a rate set by the Commissioner of Revenue.
– Unregistered Vehicle Penalties: Driving an unregistered vehicle due to unpaid taxes is a misdemeanor under Arkansas law, which can result in fines or vehicle impoundment.

Timely tax payments and proper registration help buyers avoid unnecessary penalties.