Does Arkansas Have State Taxes? What You Need to Know

Taxes fund public services, and each state has its own approach. Arkansas imposes various taxes on individuals and businesses. Understanding these obligations helps residents and business owners plan effectively and avoid unexpected costs.

While some states have no income tax, Arkansas taxes both individuals and businesses. Knowing which taxes apply and any available exemptions or credits can help manage finances.

Individual Income Tax Details

Arkansas levies a progressive state income tax on residents and nonresidents earning income in the state. As of 2024, there are two tax tables: one for individuals earning less than $87,000 annually and another for those earning more. Those making under $87,000 face rates from 2% to 4.4%, while those exceeding this threshold pay a flat 4.4%. These rates apply to taxable income after deductions and exemptions.

Taxpayers can reduce taxable income through standard or itemized deductions. The 2024 standard deduction is $2,390 for single filers and $4,780 for married couples filing jointly. Itemized deductions include mortgage interest, medical expenses exceeding 7.5% of adjusted gross income, and state and local taxes paid. A personal tax credit of $29 per taxpayer and dependent directly reduces the tax owed.

Retirement income receives favorable treatment. Social Security benefits are fully exempt, and up to $6,000 from pensions, 401(k) plans, and other retirement accounts is excluded from taxation. Military retirees benefit from a full exemption on pension income.

Business Tax Obligations

Arkansas businesses must comply with various tax requirements. Corporations are subject to corporate income tax, which follows a graduated rate structure. As of 2024, rates start at 1% on taxable income up to $3,000, increasing to a top rate of 5.3% for income exceeding $25,000. Businesses must file an annual corporate income tax return using Form AR1100CT, with payments due by April 15 for calendar-year filers.

Limited liability companies (LLCs) and partnerships generally pass income through to owners, who report it on their individual tax returns. LLCs electing corporate taxation follow corporate tax rules. All LLCs, corporations, and certain partnerships must also pay an annual franchise tax, typically a flat $150 fee, due by May 1. Failure to pay can result in penalties and administrative dissolution.

Employers must withhold state income tax from wages and remit payments to the Arkansas Department of Finance and Administration (DFA). Payment frequency depends on total tax liability, with larger employers required to deposit more often. Employers must also contribute to the state’s unemployment insurance program, with rates varying based on industry and claims history. New employers typically start at 2.9% on the first $7,000 of each employee’s wages.

Certain industries face additional taxes. Businesses selling alcoholic beverages must obtain permits and pay excise taxes. Hotels and lodging establishments are subject to tourism taxes. Contractors working on construction projects may need to register for a contractor’s tax, which applies to materials used in specific projects.

Sales and Use Tax Overview

Arkansas imposes a state sales tax on most goods and some services, requiring businesses to collect and remit these taxes to the DFA. As of 2024, the statewide sales tax rate is 6.5%, but local sales taxes can increase the total rate. Businesses must apply the correct rate based on the point of sale or delivery location.

Use tax applies when goods are purchased from out-of-state sellers who do not collect Arkansas sales tax. If a resident or business brings taxable items into the state for use, storage, or consumption, they must remit the applicable use tax directly to the DFA. The use tax rate matches the state sales tax at 6.5%, plus any local taxes.

Businesses must register for a sales tax permit before collecting tax from customers and file returns monthly, quarterly, or annually depending on sales volume. Late payments incur penalties, including a failure-to-file penalty of 5% per month (up to 35%) and a failure-to-pay penalty of 10% of the unpaid tax. Businesses that fail to collect and remit sales tax properly may face audits, interest charges, and legal consequences.

Local Tax Implications

Cities and counties in Arkansas impose additional taxes. Property taxes fund schools, law enforcement, and infrastructure projects. Unlike sales taxes, which vary widely, property tax rates differ by county and municipality but remain relatively stable. Arkansas assesses real estate at 20% of its appraised value, with local millage rates determining the final tax owed. For example, a property valued at $200,000 with a total millage rate of 50 mills results in an annual property tax bill of $2,000 ([200,000 × 20%] × 50/1,000).

Some municipalities levy special assessments or fees for local improvements, such as stormwater fees, fire protection district charges, or bond-related surcharges for infrastructure projects. Residents in improvement districts may see higher tax bills due to these localized levies.

Available Exemptions and Credits

Arkansas offers exemptions and credits that reduce tax liability for individuals and businesses. These incentives encourage economic activity, support specific industries, and provide relief to lower-income taxpayers.

Several purchases are exempt from sales tax, including prescription drugs, certain agricultural equipment, and manufacturing machinery. Businesses engaged in manufacturing can receive exemptions on equipment used directly in production. Utilities used in manufacturing or commercial farming may also qualify for reduced tax rates. Nonprofit organizations, including religious institutions and charities, may receive exemptions on qualifying purchases.

Tax credits directly reduce the tax owed and benefit businesses investing in job creation or economic development. The Advantage Arkansas program provides income tax credits to companies expanding operations and hiring new employees, while the InvestArk credit incentivizes significant capital investments. Individuals may qualify for credits such as the Earned Income Tax Credit (EITC) or the Child Care Tax Credit, which offsets childcare expenses for working parents.

Filing Requirements and Deadlines

Arkansas taxpayers must meet filing deadlines to avoid penalties and interest charges.

For individual income tax filers, returns are due by April 15, aligning with the federal deadline. Those needing more time can request an extension until October 15, but any taxes owed must still be paid by April 15 to avoid interest. Electronic filing is encouraged, and taxpayers can use the Arkansas Taxpayer Access Point (ATAP) to submit returns and payments online.

Businesses must also meet deadlines, with corporate income tax returns due on the same schedule as individual filers. Employers responsible for withholding taxes from employee wages must file reports and remit payments monthly, quarterly, or annually, depending on payroll size.

Sales tax filings follow a similar structure, with most businesses required to report and remit collected taxes monthly. Smaller businesses with lower sales volumes may qualify for quarterly or annual filing schedules. Late payments can result in penalties of up to 35% of the tax due, along with interest charges. Franchise taxes, which apply to corporations and LLCs, must be paid by May 1 to remain in good standing with the state. Missing this deadline can lead to additional fees and potential administrative dissolution of the business entity.