A. The
Arkansas gross receipts tax is a tax imposed on the sale of tangible personal
property and not the property itself. Thus, when a sale of tangible personal
property occurs in Arkansas, a taxable event has occurred and the tax should be
collected and remitted.
B.
INTRASTATE (ARKANSAS) SALE.
1. When tangible
personal property is sold to a consumer and the seller of the property is
engaged in an established business, or sells in an established manner, within
Arkansas, and delivery is made within Arkansas transferring either title or
possession of the property, the sale is intrastate and subject to the gross
receipts tax irrespective of the fact that the seller may not have in stock
certain goods, wares, and merchandise for immediate delivery, which requires
the seller to order the goods for direct shipment at or from a source outside
Arkansas.
2. If an out-of-state
consumer orders goods from an Arkansas seller and picks up the tangible
personal property in Arkansas in the purchaser's own conveyance, then the sale
is intrastate and gross receipts tax must be collected and remitted.
3. Gross receipts tax applies to tangible
personal property delivered in Arkansas even though the buyer intends to
transport the tangible personal property out of Arkansas.
C. INTERSTATE SALES.
1. Delivery from Arkansas. When tangible
personal property is sold by a seller that is engaged in an established
business, or sells in an established manner within Arkansas, and the contract
of sale or order requires the seller to deliver the property by common carrier,
contract carrier, U.S. Postal Service, or in the seller's own conveyance to a
point outside Arkansas for consumption or use, the transaction is interstate
and not subject to Arkansas gross receipts tax.
2. Delivery into Arkansas. If tangible
personal property is purchased for use or consumption in Arkansas from a seller
in another state and delivery is made in Arkansas, then such sale is subject to
Arkansas compensating use tax. The out-of-state seller may be required to
collect Arkansas tax. If the out-of-state seller does not collect Arkansas tax,
it becomes the responsibility of the Arkansas customer to remit compensating
use tax directly to the Department. The Arkansas customer will be given credit
for tax legally paid on the item in another state pursuant to Ark. Code Ann.
§§
26-5-101,
26-53-131.
See Ark. Code Ann. §
26-53-101 et
seq. and UT-12.
D. DROP
SHIPMENTS. A drop shipment is a sales transaction involving three parties - two
sellers and one consumer. The first seller sells property to the second seller,
who sells to the consumer; however, the first seller delivers the property
directly to the consumer. The taxability of drop shipments depends on the
location of the second seller and the consumer. The location of the first
seller is irrelevant because the sale from the first seller to the second
seller is an exempt sale for resale.
Example 1: An out-of-state company, Company A, sells tangible personal
property to another out-of-state company, Company B, but drop ships the
property directly to Company B's customer located in Arkansas. The sale by
Company A to Company B is an out-of-state transaction and is not taxed in
Arkansas. The sale of the property is also a sale for resale and would be
exempt if it occurred in Arkansas. The sale from Company B to its customer is
taxable. Since Company B is making a sale to an Arkansas customer, Company B
may be required to collect Arkansas tax. If Company B does not collect Arkansas
tax, then the Arkansas customer is responsible for reporting and remitting
Arkansas compensating use tax. See Ark. Code Ann. §
26-53-101 et
seq. and the Arkansas Compensating Use Tax Rules.
Example 2: An Arkansas retailer, Company A, sells tangible personal
property to a company located outside of Arkansas, Company B. Company A ships
the tangible personal property directly to Company B's Arkansas customer. If
Company B claims the sale-for-resale exemption, then the tax obligation is
between Company B and the Arkansas customer. Company B may be required to
collect Arkansas tax. If Company B does not collect Arkansas tax, then the
Arkansas customer is responsible for reporting and remitting Arkansas
compensating use tax. See Ark. Code Ann. §
26-53-101 et
seq. and the Arkansas Compensating Use Tax Rules.
E. SERVICES.
1. Services Performed in Arkansas. When
taxable services are performed in Arkansas and the customer takes receipt of
the service in Arkansas, the transaction is subject to Arkansas gross receipts
tax. However, if taxable services are performed in Arkansas, but the customer
takes receipt of the service outside of Arkansas, then no Arkansas gross
receipts tax is due.
Example: XYZ is a business located in West Memphis, Arkansas that
repairs automobile motors. After repairing the motor, XYZ ships the motor by
common carrier to Nashville, Tennessee. Since the customer took receipt of the
service in Nashville, Tennessee, XYZ will not collect Arkansas tax.
2. Services Performed Outside of
Arkansas. If a taxable service is purchased for use or consumption in Arkansas
from a seller in another state, then such sale is subject to Arkansas
compensating use tax. The out-of-state seller may be required to collect
Arkansas tax. If the out-of-state seller does not collect Arkansas tax, then
the Arkansas customer is responsible for reporting and remitting Arkansas
compensating use tax. The Arkansas customer will be given credit for tax
legally paid for the service in another state pursuant to Ark. Code Ann.
§§
26-5-101
and
26-53-131.
See Ark. Code Ann. §
26-53-101 et
seq. and UT-12.
Example: XYZ ships office equipment out of state for repairs. Following
the repair, the office equipment is returned to XYZ in Arkansas. Office
equipment repairs are subject to tax in Arkansas. Tax is due on the parts,
labor, and delivery charged based on where the repaired item is delivered
within Arkansas.
F. ENGAGED IN AN ESTABLISHED BUSINESS. A
person is considered to be engaged in an established business within Arkansas
if the person either directly, or through a subsidiary, has a store, salesroom,
sample room, showroom, distribution center, warehouse, service center, factory,
credit and collection office, administrative office, or research facility in
Arkansas.
G. DELIVERY. Delivery in
Arkansas means that physical possession of the tangible personal property is
actually transferred to the buyer within Arkansas, or that the tangible
personal property is placed in the mail or given to a common or contract
carrier at a point outside this state and directed to the buyer in
Arkansas.
