HNDING OF IMMINENT PERIL AND STATEMENT OF REASONS
During the 81st General Assembly, the Arkansas Legislature
passed Act 1076 of 1997. This act provided the following changes to existing
law:
1) Imposed sales tax on the gross
receipts derived from the sale of service contracts covering taxable
services;
2) Provided an exemption
from sales and use tax for motor vehicles used for long-term lease;
and,
3) Levied a new 1.5% long-term
rental tax on the lease of motor vehicles.
This regulation is necessary in order to provide an orderly
implementation of Act 1076 and to provide needed direction for motor vehicle
lessors. Without this regulation, lessors of motor vehicles may not properly
claim the exemption or collect tax. The provisions of this regulation will
become effective on August 1, 1997.
EMERGENCY REGULATION
These amendments to the Arkansas Gross Receipts Tax Regulations
are necessary in order to properly implement and enforce Act 1076 of 1997 which
becomes effective on August 1, 1997.
I.
Gross Receipts Regulation GR-9(C)
is amended to read as follows:
"
C.
Service Contracts, Maintenance Agreements, & Extended Warranties
1. Sales tax shall apply to the gross
receipts derived from the sale of contracts, including service contracts,
maintenance agreements and extended warranties, which in whole or in part
provide for the future performance of or payment for services which are subject
to gross receipts tax. The seller of the contract must collect and remit the
tax due on the sale of the contract except when the contract is sold
simultaneously with a motor vehicle in which case the purchaser of the vehicle
shall pay sales tax on the purchase of the contract at the time of vehicle
registration.
2. Sales tax shall
not be collected from the consumer on labor or parts used in the performance of
services covered by a taxable service contract, maintenance agreement or
extended warranty.
3. Examples:
a. Consumer purchases a new vehicle and an
extended warranty at the same time. When customer registers the vehicle, he
will pay sales tax on the purchase price of the vehicle and the purchase price
of the extended warranty. Service and parts provided under the warranty will
not be subject to sales tax.
b.
Consumer purchases a new computer and a service contract. The seller of the
computer collects sales tax on the purchase price of the computer and the
service contract. Service and parts provided under the warranty will not be
subject to sales tax.
4.
If the seller of a taxable contract allows the purchaser to pay for the
contract in monthly or other periodic installments, then the seller may report
and remit sales tax on the periodic payments.
5. Emergency Regulation 1996-4 is repealed
effective July 31, 1997. This amendment is effective on August 1,
1997."
II.
Gross Receipts Regulation GR-12(D) is amended to read as follows:
"
D. EXEMPTION FOR RENTAL MOTOR VEHICLES
1. The gross receipts or gross proceeds
derived from the sale of a motor vehicle to a person engaged in the business of
renting licensed motor vehicles shall be exempt from sales and use tax if:
a) the person has a rental exemption
certificate and retail sales tax permit issued by the Commissioner;
and,
b) the motor vehicle is titled
and registered in the name of the person holding the rental
certificate.
2.
Definitions - The following terms for purposes of this regulation and
regulation GR-20 shall have the following meanings:
a. "Licensed motor vehicle" means any
automobile, truck, van, motorcycle, truck tractor or other self-propelled
vehicle required to be licensed for highway use under the law of Arkansas. A
vehicle which is titled and registered in a state other than Arkansas but which
is the type of vehicle that would be required to be registered for highway use
in Arkansas is a licensed motor vehicle. Trailers and semi-trailers are not
motor vehicles. The term "motor vehicle" does not include special mobile
equipment as defined in Ark. Code Ann. §
27-14-211 or implements of
husbandry as defined in Ark. Code Ann. §
27-14-212.
b. "Engaged in the business of renting
licensed motor vehicles" means that the person regularly and persistently rents
licensed motor vehicles for gain or profit.
c. " Rental exemption certificate" means a
certificate issued by the Commissioner through the Sales and Use Tax Section
which provides that the person is registered to engage in the rental of
licensed motor vehicles for either short-term or long-term use.
d. "Short-term rental" means rental for less
than thirty (30) days.
e.
"Long-term rental" means rental for thirty (30) days or more. Whether a rental
of a motor vehicle is considered long-term or short-term is dependent on the
written contract and period for which payment is initially due.
Example: If a vehicle is rented initially for 14 days with the
rental contract reflecting a term of rental for 14 days and the customer
subsequently decides to continue renting the vehicle for 21 more days, the
transaction is treated as two short-term rentals.
3. In order to claim the exemption from sales
and use tax, the motor vehicle purchaser must provide a copy of the rental
exemption certificate to the Revenue Division Office at the time of
registration and titling of each vehicle along with the other documents
required by law for registration and titling. The certificate will become a
part of the permanent record of the Office of Motor Vehicles and all
information must be provided as requested on the certificate. A short-term
rental exemption certificate issued previously may not be used to register a
vehicle intended for long-term rental. The long-term lessor must register with
the Sales and Use Tax Section and obtain a new rental exemption certificate. A
separate copy of the certificate must be presented for each vehicle registered
and titled.
4.
a. The exemption is valid only if the motor
vehicle is used exclusively for short-term or long-term rentals . If the motor
vehicle is used for any other purpose, then the exemption granted at the time
of registration is revoked and the purchaser is obligated to pay the applicable
sales or use tax, plus penalty and interest as provided by the Arkansas Tax
Procedure Act.
b. Use of the motor
vehicle by anyone other than a short-term or long-term lessee for business or
personal purposes will cause the exemption to be revoked. For example, use of a
vehicle registered as a leased vehicle as an airport shuttle or free customer
"loaner" car will cause the exemption to be revoked. Driving the vehicle to the
nearest repair facility for purposes of repairs will not cause the exemption to
be revoked.
5. See GR-20
for application of the rental vehicle tax, long-term rental tax and record
keeping requirements."
III.
Gross Receipts Regulation GR-20(C)
is amended to read as follows:
"
C.
Long-term Lease of Vehicles
1.
a.
With respect to motor vehicles leased on a long-term basis on
or after August 1, 1997, the lessor has the option of:
(i) remitting sales or use tax on the
purchase price of the motor vehicle at the time of registration (Option 1), or,
(ii) registering the vehicle
exempt from tax (Option 2).
b. If the lessor chooses Option 1, then the
lessor will not collect sales tax or long-term rental tax on the monthly (or
other periodic) lease payments due from the lessee. No tax shall be collected
by the lessor on the lease of vehicles which have been previously titled and
registered in another state by the lessor if sales or use tax was paid to the
other state on the purchase price of the vehicle and the total tax paid to the
other state equals or exceeds the combined Arkansas state and local use tax as
applied to the purchase price of the vehicle.
c. If the lessor chooses Option 2, then the
lessor must collect sales tax and long-term rental tax on the entire monthly
(or other periodic) lease payment due from the lessee as consideration for the
lease of the vehicle. The lessor must report and remit sales tax and long-term
rental tax regardless of whether the lessee timely makes me lease payments
required in the lease agreement. Assignment of a lease agreement does not
relieve the lessor from the obligation to remit sales or use tax and long-term
rental tax. The lessor's obligation to remit tax ends at the earlier of the
expiration of the lease term, or the valid termination of the lease as provided
by the terms of the written lease agreement.
d. Trailers and semi-trailers are not "motor
vehicles" and may not be registered exempt under Act 1076 of 1997. The
long-term lease of a trailer which has been registered and titled in Arkansas
is not subject to gross receipts or long-term rental tax.
e. A vehicle used for long-term or short-term
rental which was registered in Arkansas and Arkansas sales or use tax paid or
credited prior to August 1, 1997 may be leased on a long-term basis without the
collection of sales tax and long-term rental tax. This presumes that the lessor
remains the same. If the original lessor sells the vehicle on or after August
1, 1997, then the new lessor has the options described in paragraph 1,
above.
f. A motor vehicle which was
registered exempt from sales or use tax prior to August 1, 1997 as a short-term
rental vehicle may be subsequently leased on a long-term basis. The lessor must
choose Option 1 or Option 2 described in paragraph 1, above.
i. If the lessor chooses Option 1, then the
lessor must only re-title the vehicle in the lessor's name and pay sales tax at
the time of registration. The sales tax will be based on the lessor's purchase
price of the vehicle.
ii. If the
lessor chooses Option 2, then the lessor must register with the Sales and Use
Tax Section as a long-term rental business, obtain a new rental exemption
certificate from the Sales and Use Tax Section and re-title the vehicle in the
lessor's name. No sales tax will be paid at the time of registration; however,
the lessor must collect and remit sales tax and long-term rental tax on the
monthly (or other periodic) lease payments.
2. DEFINITIONS:
a. A motor vehicle is "leased on a long-term
basis on or after August 1, 1997" when the written lease agreement covering the
vehicle is signed by the lessee on or after August 1, 1997 and the vehicle was
not registered and titled in Arkansas by the lessor before August 1,
1997..
b. "Entire monthly (or other
periodic) lease payment" includes all charges, fees, taxes, interest,
penalties, late payments or other amounts included in the lease agreement as
due and payable by the lessee to the lessor on a monthly or other periodic
basis as consideration for the lease of the motor vehicle. With respect to
leases containing a terminal rental adjustment clause (TRAC), the upward
adjustment of a lease payment is considered part of the entire monthly payment
subject to tax. In the event that a lease payment is adjusted downward under a
TRAC, die lessor is entitled to take a deduction from gross receipts for such
downward adjustment if the lessor refunds to the lessee taxes previously
collected from the lessee.
c.
"Long-term rental tax" means the 1.5% tax levied by Act 1076 of 1997 on the
entire monthly (or other periodic) payment for the long-term lease of a motor
vehicle required to be licensed for use on the highway. The tax is to be
collected by the lessor from the lessee and remitted to the Department of
Finance and Administration. The long-term rental tax does not apply to gross
receipts from the long-term lease of:
i.
diesel trucks leased for commercial shipping,
ii. farm machinery or farm equipment leased
for a commercial purpose,
iii.
trucks leased for residential moving or shipping,
iv. special mobile equipment or other motor
vehicles not required to be licensed, and
v. trailers. If, however, a motor vehicle is
leased on a long-term basis with a trailer, then the long-term rental tax
applies to the total consideration for the lease of the motor vehicle and
trailer unless the consideration for the lease of the motor vehicle is
separately stated from the consideration for the lease of the
trailer.
d. "Long-term
rental" means rental or lease of a motor vehicle for thirty (30) days or more.
Whether a rental of a motor vehicle is considered long-term or short-term is
dependent on the written contract and period for which payment is initially
due. If a vehicle is rented initially for 14 days with the rental contract
reflecting a term of rental for 14 days and the customer subsequently decides
to continue renting the vehicle for 21 more days, the transaction is treated as
two short-term rentals, not one long-term rental.
e. "Lessor" means the person who owns the
motor vehicle at the time that the lessee signs the lease agreement. The lessor
is presumed to be the vehicle owner if the vehicle is titled in the name of the
lessor or if the lessor is the last person to whom the vehicle title has been
assigned at the time of the lease agreement. "Lessor" does not include an
assignee of the lease agreement or of the vehicle when the assignment occurs
after the lessee signs the lease.
4.
a.
Sales or use tax to be collected and remitted by the lessor
means Arkansas gross receipts or compensating use tax (the current rate is
4.625%) plus local city and county sales or use tax. The applicable local tax
is the sales or use tax imposed by the city and county in which the lessor
resides.
b. A lessor with a
business location in Arkansas and vehicles leased to an Arkansas resident
collects and remits local sales tax based on the city and county of the
lessor's business location. A lessor with no business location in Arkansas and
with vehicles leased to an Arkansas resident collects local sales tax based on
the city and county in which the lessee resides. A lessee is presumed to reside
in the county in which the vehicle is garaged or assessed for property tax
purposes.
5.
a.
If a vehicle is initially leased to an Arkansas resident under
Option 2 and the lessee later becomes a resident of another state during the
term of the lease, then the lessor is no longer required to collect and remit
Arkansas sales tax and long-term rental tax on the remainder of the monthly
lease payments. The lessor must maintain records which accurately reflect that
the vehicle is no longer leased to an Arkansas resident.
b. If a vehicle is initially leased to a
resident of another state and the lessee later becomes a resident of Arkansas
during the term of the lease, then the lessor must begin collecting and
reporting Arkansas sales tax and long-term rental tax only if no tax was paid
to another state when the vehicle was registered and the lessor chooses Option
2. If no tax was paid to another state and the lessor chooses Option 1, then
the lessor must pay state and local use tax on the stated invoice price of the
vehicle and not collect sales or long-term rental tax from the lessee. If tax
was paid to another state and the vehicle was first registered in another
state, then the lessor is entitled to credit against the Arkansas use tax for
taxes paid to the other state, and pay the balance due, if any.
Example 1: Lessee is a Georgia resident at the inception of the
24 month vehicle lease which notes the invoice price of the vehicle as $30,000.
The vehicle was registered in Georgia; however, no Georgia sales tax was paid.
The lessor collected applicable Georgia sales taxes on the monthly rental
payments. One year later, Lessee becomes an Arkansas resident and brings his
leased car to Arkansas. Lessor chooses Option 1. When Lessee (or Lessor)
registers the vehicle in Arkansas, Arkansas use tax is due based on the invoice
price of $30,000. Lessor will not be obligated to collect and remit tax on the
monthly lease payments. No credit is given for taxes paid on the monthly lease
payments.
Example 2: Lessee is a Georgia resident at the inception of the
24 month vehicle lease which notes the invoice price of the vehicle as $30,000.
The vehicle was registered in Georgia; however, no Georgia sales tax was paid.
The lessor collected applicable Georgia sales taxes on the monthly rental
payments. One year later, Lessee becomes an Arkansas resident and brings his
leased car to Arkansas. Lessor chooses Option 2. Lessor must obtain an Arkansas
sales tax permit and rental exemption certificate before the vehicle may be
registered tax free. Lessor must collect and remit tax on the monthly lease
payments.
Example 3: Lessee is a Georgia resident at the inception of the
24 month vehicle lease which notes the invoice price of the vehicle as $30,000.
The vehicle was registered in Georgia and Georgia sales tax paid on the invoice
price. The Georgia sales tax rate exceeds the Arkansas sales tax rate. One year
later, Lessee becomes an Arkansas resident and brings his leased car to
Arkansas. Lessor is not required to collect and remit tax on the monthly lease
payments because tax was paid to Georgia when the vehicle was
registered.
Example 4: Lessee is a Georgia resident at the inception of the
24 month vehicle lease which notes the invoice price of the vehicle as $30,000.
The vehicle was registered in Georgia and Georgia sales tax paid on the invoice
price. The Georgia sales tax rate is less than the Arkansas sales tax rate. One
year later, Lessee becomes an Arkansas resident and brings his leased car to
Arkansas. If Lessor chooses Option 1, Lessor is to pay the difference between
the Georgia tax and Arkansas tax at registration. If Lessor chooses Option 2,
Lessor must obtain an Arkansas sales tax permit and rental certificate. Lessor
must collect and remit tax on the monthly rental payments.
6. DIRECT PAY PERMIT
a. Option 1: Sales or use tax must be paid at
the time of registration. A lessee holding a direct pay permit may not accrue
and remit sales or use tax on the vehicle.
b. Option 2: If a lessee holds a direct pay
sales tax permit, then the lessor is not obligated to collect state and local
sales tax or long-term rental tax from the lessee. The lessor must maintain
records reflecting that the lessee intends to report and remit the tax on its
monthly sales tax report under its direct pay permit number. No Manufacturer's
Investment Credit may be taken to offset liability of a direct pay permit
holder for long-term rental tax or short-term rental tax."
IV.
Gross
Receipts Regulation GR-20(E)(3) is amended to read as follows:
"
E.
3. The
lessor must retain for at least 6 years records which establish the rental
history of each vehicle including copies of written contracts with the lessee
and mileage incurred on the vehicle by each lessee. Failure to adequately
document the exclusive use of the vehicle for rentals will constitute a
presumption that the vehicle was not exclusively used for rentals resulting in
the revocation of the sales tax exemption claimed at the time of registration
of the vehicle. See GR-12."
V.
Gross Receipts Regulation GR-20(G)
is amended to read as follows:
"
G. The
chart below sets forth the various taxes which must be collected on the
described short-term rentals. "Resid. Moving" means the residential moving tax
levied under Ark. Code Ann. §
26-52-312. "Short term rent, tax"
means the short-term rental tax levied under Ark. Code Ann. §
26-52-311.
|
SHORT TERM
RENTALS
Less than 30 days
|
State Sales Tax 4.625% + local
|
Residential
Moving Tax 4.5%
|
Rental Vehicle Tax
4.5% + local
|
Short Term Rental Tax
1%
|
Total State Tax Rate
|
|
TRUCKS - Diesel
For commercial shipping
|
Y
|
N
|
N
|
N
|
4.625%
|
|
TRUCKS - Diesel For residential moving
|
Y
|
Y
|
N
|
N
|
9.125%
|
|
TRUCKS - Diesel For purpose other than residential
moving or commercial shipping
|
Y
|
N
|
Y
|
N
|
9.125%
|
|
TRUCKS - Gasoline For residential moving
|
Y
|
Y
|
N
|
N
|
9.125%
|
|
TRUCKS - Gasoline For any other purpose
|
Y
|
N
|
Y
|
N
|
9.125%
|
|
CARS, MOTORCYCLES
|
Y
|
N
|
Y
|
N
|
9.125%
|
|
TRAILERS WITH
VEHICLE
For residential moving
|
Y
|
Y
|
N
|
N
|
9.125%
|
|
TRAILERS WITH VEHICLE
For commercial shipping with diesel truck
|
Y
|
N
|
N
|
N
|
4.625%
|
|
TRAILERS WITH VEHICLE
For other purpose
|
Y
|
N
|
'Y
|
N
|
9.125% See note 1 below.
|
|
TRAILERS W/O VEHICLE
For residential moving
|
Y
|
N
|
N
|
N
|
4.625%
|
|
TRAILERS W/O
VEHICLE
For commercial shipping
|
Y
|
N
|
N
|
N
|
4.625%
|
|
TRAILERS W/O VEHICLE
For other purpose
|
Y
|
N
|
N
|
N
|
4.625%
|
|
MOVING MATERIALS Sale or lease with truck for
residential moving -same invoice
|
Y
|
Y
|
N
|
N
|
9.125%
|
|
MOVING MATERIALS Sale for non-residential move or w/o
truck
|
Y
|
N
|
N
|
N
|
4.625%
|
|
MOVING MATERIALS Lease for non-residential move or w/o
truck
|
Y
|
N
|
N
|
Y
|
5.625%
|
1. If the
consideration for the lease of the motor vehicle is not separately stated from
the consideration for the lease of the trailer, the rental vehicle tax will
apply to the total consideration for the rental of both vehicles.
