State & Local Tax Impacts of COVID-19 for Arkansas – 2021

Thoughtware Alert Published: May 03, 2021 | Updated: Aug 10, 2021

Information current as of July 31, 2021.

COVID-19 has changed life across the globe. Many taxing jurisdictions are taking mitigating actions to create social distance and aid taxpayers. The following is a running list of actions by jurisdiction, which generally result in additional time to file and/or pay. Further, many jurisdictions have closed their offices to in-person use by taxpayers and suspended their audit and administrative functions. This alert doesn’t cover similar waivers from local-level taxing authorities. These developments continue to quickly evolve; check with your BKD Trusted Advisor or visit our COVID-19 Resource Center for current information as needed.

Information Specific to Arkansas

  • Arkansas legislation exempts unemployment compensation benefits and unemployment insurance benefits from individual income tax for calendar years 2020 and 2021. The law includes measures creating an exemption from the tax imposed by the Income Tax Act of 1929 for 1) unemployment compensation benefits paid from federal unemployment funds for calendar-year 2020 or 2021; and 2) unemployment insurance benefits received from unemployment compensation paid under Title IV of the Social Security Act for calendar-year 2020 or 2021.
    • Arkansas S.B. 236, enacted March 2, 2021, and retroactively effective to January 1, 2020.
  • Arkansas legislation excludes forgiven loans, payments, and expenses related to COVID-19 relief programs from gross income. The law excludes from the definition of “gross income” any income received through the following federal COVID-19 relief programs: loan forgiveness under the Paycheck Protection Program (PPP); U.S. Small Business Administration grants under the Economic Injury Disaster Loan (EIDL) program; and payments received under the Coronavirus Food Assistance Program (CFAP). Taxpayers also may deduct otherwise allowable expenses incurred using forgiven PPP loans, EIDL grant funds, and CFAP funds. Further, the exclusion from gross income of forgiven PPP loans and other CARES Act funds doesn’t affect the inclusion of such income for purposes of calculating net operating loss carryovers.
    • Arkansas H.B. 1361, enacted March 2, 2021, and retroactively effective for tax years beginning on or after January 1, 2019.
  • Arkansas extended the 2020 tax filing and payment deadlines to May 17 from April 15 for income tax returns for individuals, Subchapter S corporations, fiduciaries and estates, and partnerships, as well as for composite returns. The extension aligns with the extension announced by the U.S. Department of the Treasury and the IRS. The requirement for a written request for an extension is waived.
    • Governor’s Executive Order No. EO 21-06, March 19, 2021.
    • Arkansas S.B. 593, enacted April 12, 2021, through May 18, 2021.
  • Arkansas emergency legislation delays sales and use tax filing and payment deadlines for restaurants due to the COVID-19 pandemic to 1) June 20 for sales tax collected in March, April, and May; 2) September 20 for sales tax collected in July, June, and August; 3) December 20 for sales tax collected in September, October, and November; and 4) March 20, 2022, for sales tax collected in December 2021 and January and February 2022. The law includes a measure clarifying that taxpayers who file and pay by the delayed deadlines aren’t subject to late fee or penalty assessments. 
    • Arkansas S.B. 479, effective April 14, 2021.
  • Arkansas emergency legislation expands the sales and use tax exemption for public school purchases of instructional materials in light of the COVID-19 pandemic. The law includes measures amending the definition of “instructional materials” to include equipment required to make use of technology-based educational materials and electronic software. 
    • Arkansas S.B. 244, effective July 1, 2021.
  • Arkansas legislation provides that nonresidents who earn income from Arkansas sources will only pay tax on the income the nonresident earns while physically present in the state when performing the work. Specifically, the law provides that a nonresident individual who is paid a salary, lump-sum payment, or any other form of payment that encompasses work performed both inside and outside of Arkansas must pay Arkansas income tax only on the portion of the individual’s income that reasonably can be allocated to work performed in Arkansas. A nonresident individual performs work in Arkansas when that individual is physically located in Arkansas when performing the work. The provision allowing a credit for income tax owed to other states is amended to clarify that income from property located or business transacted in another state does not include work performed in Arkansas. Effective May 1, 2021, the definition of “employer” under the Arkansas Income Tax Withholding Act also is amended to include a person doing business in or deriving income from sources outside of Arkansas who has control of the payment of wages to an individual for services performed within the state.
    • Arkansas Act 1019 (S.B. 484), effective for tax years beginning on or after January 1, 2021, unless otherwise noted.
  • Arkansas legislation allows the Arkansas Division of Workforce Services to relieve employer state unemployment insurance (SUI) accounts of regular COVID-19 employment benefits. The legislation codifies Executive Order 20-54, in which Arkansas Gov. Asa Hutchinson ordered the 2021 SUI tax rates be computed without the UI benefit amounts paid to Arkansas claimants from April 1, 2020, through June 30, 2020, the cutoff date for 2021 rate computation.
    • Arkansas Act 153 (H.B. 1212), effective retroactively to the week ending April 4, 2020.

For more information, reach out to your BKD Trusted Advisor or use the Contact Us form below.

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