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Arkansas Tax and Incentives Update

Summary of 2017 Arkansas Sales and Use Tax Legislation


Matt Boch - Wednesday, April 12, 2017

There were relatively limited changes to Arkansas sales and use tax laws in the 2017 legislative session. The big news is Act 465, which phases out the InvestArk sales/use tax credit program while bringing in an exemption for manufacturing partial repairs and replacement parts. While a welcome simplification of the Arkansas tax system, the loss of InvestArk will affect many Arkansas manufacturers. Businesses should consider filing a final InvestArk application by June 30, 2017. Beyond Act 465, the Act 141 expansion of the tax base to include digital products is significant and may affect taxpayers engaged in e-commerce.

Act 141 paid in part for the military retirement income tax exemption with two sales and use tax revenue raisers, both effective January 1, 2018:

 Arkansas will begin taxing digital products using the Streamlined definitions (“digital audio works,” “digital audio-visual works,” “digital books,” etc.).

The Act will also tax candy and soft drinks at the high general rate instead of the low rate for groceries; reduces the soft drink tax; and exempts from that tax simple syrup used in making tea.

 Act 262 removes the superfluous definition of "facilitator" from the click-through nexus provisions of Arkansas Code Section 26-52-110.

 Act 465 is the InvestArk / repair and partial replacement parts and labor swap, which essentially phases in an exemption for the repair and partial replacement of certain machinery and equipment, while phasing out the InvestArk investment tax incentive.

 The exemption phase-in for repairs and partial replacements occurs beginning July 1, 2018, with annual 1% rate reductions (effectively partial exemptions) until the exemption is completely phased in on July 1, 2022. Act 465 also expands taxpayers’ ability to claim this benefit without having a direct pay permit or limited direct pay permit.

 The InvestArk phase out is achieved by prohibiting acceptance of new applications after June 30, 2017. Any final InvestArk applications should be filed on or before June 30, 2017. InvestArk then will naturally phase itself out as existing projects proceed to completion and earn credits.

 Act 465 also prohibits the increased sales tax refund for major maintenance and improvement projects (Act 1404 of 2013; Ark. Code Ann. § 15-4-3501) after June 30, 2022. Similar to the InvestArk phase out, major maintenance and improvement projects then will naturally phase out as existing projects proceed to completion and earn refunds.

 Act 465 as a whole is effective March 13, 2017, but most of its operative provisions have their own dates on which they begin having an effect.

 Act 595 expands the fly-away sales tax exemption to sellers of large aircraft when the seller is located in the state and the aircraft is sold in the state but will be based outside of the state. This will continue to expand the use of Arkansas aircraft flight testing, inspection, and maintenance facilities for closings of aircraft sales. Effective March 23, 2107.

 Act 661 broadens the sales tax exemption for purchases of new motor vehicles by nonprofits providing transportation services under contracts with the Department of Human Services or purchased with Federal Transit Administration funds. It does so by eliminating a requirement that vehicles be purchased in lots of 10 or more in order to qualify for the exemption. Likely effective October 1, 2017.

 Act 665 removes the requirement that sales by a charitable organization must be made with a dominant motive of making a charitable contribution in order to be exempt. For example, this could apply to sales of concessions at a fundraiser or auction items at a charity ball. It is likely to be effective October 1, 2017.

 Act 672 adds lease and rental transactions to the exemption from sales tax for beer kegs used to sell beer wholesale by a wholesale manufacturer.

 Act 673 requires Arkansas wineries making direct shipments to consumers to source the collection of sales taxes to the purchaser's delivery address.

 Act 759 tightens DFA’s already draconian business closure powers by making a DFA hearing officer’s determination to close a business (for tax noncompliance) effective 20 days after the decision and simultaneously effective as an injunction prohibiting further operation of the business. Apparently DFA has been dealing with a surfeit of frivolous appeals under the current statutory framework. Act 759 is likely effective October 1, 2017.

 SB140 failed to pass but worth mentioning as a hybrid economic nexus and use tax reporting bill that was intended to compel sales and use tax collection by remote sellers. The bill failed to pass the House over apparent concern that it constituted a tax increase or new tax; complicated by the fact that the United States Supreme Court has not yet revisited its Quill decision from 1992, as Justice Kennedy has signaled a willingness to do.

 

If an effective date is not specifically listed for a given Act, it should be effective 90 days after adjournment sine die, on or around July 30, 2017.

(If an effective date is not specifically listed, it should be 90 days after adjournment sine die, on or around July 30, 2017.)

 




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