The Arkansas Legislature recently passed Senate Bill 576 (S.B. 576) and House Bill 1953 (H.B. 1953).
Applicable for tax years beginning on or after January 1, 2019, H.B. 1953 updates Arkansas corporate and personal income tax conformity to a number of specific delineated provisions of the Internal Revenue Code (IRC), including:
- IRC Sections 167 and 168(a)–(j), as in effect on January 1, 2019 (previously January 1, 2017), regarding depreciation and expensing of property
- IRC Sections 351, 354 to 358, 361, 362, 367 and 368, as in effect on January 1, 2019 (previously January 1, 2017), regarding corporate reorganizations and recognition of gain
S.B. 576 provides significant changes to Arkansas corporate income tax code by reducing corporate income tax rates, requiring corporations and other financial institutions to begin using single sales factor apportionment and extending the net operating loss (NOL) carryforward period. In addition, S.B. 576 puts Arkansas in line with other states in ratifying legislation after the U.S. Supreme Court decision in Wayfair.
Income Tax Rate Reduction
The corporate income tax rate for any income exceeding $100,000 is reduced from 6.5 percent to 6.2 percent for tax years beginning on or after January 1, 2021. For tax years beginning on or after January 1, 2022, the maximum income tax rate is further reduced to 5.9 percent on income exceeding $25,000.
Single Sales Factor Apportionment
The bill requires use of the single sales factor apportionment, rather than the current three-factor, double-weighted sales apportionment formula businesses currently are using to tax income in Arkansas. The change to a single sales factor apportionment formula begins for tax years beginning on or after January 1, 2021, for all business income of general corporations and financial institutions.
The NOL carryforward period extends from five years to eight years for any losses occurring in tax years beginning on or after January 1, 2020. Also, the carryforward period is increased to 10 years for losses occurring in tax years beginning on or after January 1, 2021.
Remote Seller Sales Tax
Consistent with the wave of Wayfair legislation enacted by states, the bill requires out-of-state remote sellers with more than $100,000 in annual gross sales to collect and remit Arkansas sales tax.
For more information on how these developments may affect your organization or assistance with these new provisions, reach out to your trusted BKD advisor or use the Contact Us form below.