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Arkansas And Its Tax Climate

This month we travel to the southern state of Arkansas, the Natural State. It is known for its abundant parks and wilderness areas, with terrain encompassing mountains, caves, rivers and hot springs. The rugged Ozarks region in the northwest portion of the state has hiking trails and limestone caves, such as Blanchard Springs Caverns.

The state’s diverse geography varies from mountain ranges from the Ozark and the Ouachita Mountains, which make up the U.S. Interior Highlands, to the densely forested land in the south known as the Arkansas Timberlands, to the eastern lowlands along the Mississippi River and the Arkansas Delta.

The culture of Arkansas is observable in museums, theaters, novels, television shows, restaurants and athletic venues across the state. Arkansas’s enduring image has earned the state “a special place in the American consciousness.” People such as politician and educational advocate William Fulbright, former President Bill Clinton, former secretary of state Hillary Clinton,  former NATO supreme Allied Commander General Wesley Clark, Walmart magnate Sam Walton, singer-songwriters Johnny Cash and Glen Campbell, the poet C.D. Wright, and physicist William L. McMillan, who was a pioneer in superconductor research, have all lived in Arkansas.

Arkansas generally has a humid subtropical climate. While not bordering the Gulf of Mexico, the state is still close enough to this warm, large body of water for it to influence the weather in the state. Generally, Arkansas has hot, humid summers and slightly drier, mild to cool winters.

Arkansas is known for extreme weather and frequent storms. A typical year brings thunderstorms, snow, hail, and ice storms. Situated between the Great Plains and the Gulf States, Arkansas receives about 60 days of thunderstorms a year. The state is located in Tornado Alley and some of the most destructive tornadoes in U.S. history have struck the state. While far from the coast to avoid a direct hit from a hurricane, Arkansas often gets the remnants of tropical systems, which can dump heavy amounts of rain on the state.

Business Climate

Arkansas’s earliest industries were fur trading and agriculture, with the development of cotton plantations in the areas near the Mississippi River. They were dependent on slave labor through the American Civil War.

Once a state with a cashless society in the uplands and plantation agriculture in the lowlands, Arkansas’s economy has evolved and diversified. Today, six Fortune 500 companies are based in Arkansas, including the world’s #1 retailer, Walmart. Tyson Foods, J.B. Hunt, Dillard’s, Murphy USA, and Windstream are all headquartered in the state. The state’s agricultural outputs are poultry and eggs, soybeans, sorghum, cattle, cotton, rice, hogs, and milk. Its industrial outputs are food processing, electric equipment, fabricated metal products, machinery, and paper products. Mines in Arkansas produce natural gas, oil, crushed stone, bromine, and vanadium.

The state is the U.S.’s largest producer of rice, broilers, and turkeys, and ranks in the top three for cotton, pullets, and aquaculture (catfish). Forestry remains strong in the Arkansas Timberlands, and the state ranks 4th nationally and first in the south in softwood lumber production.

Tourism is also very important to the Arkansas economy. The official state nickname “The Natural State” was created for state tourism advertising in the 1970s, and is still used today.  The state maintains 52 state parks and the National Park Service maintains seven properties in Arkansas. Many cities hold festivals, which draw tourists to Arkansas culture, such as The Bradley County Pink Tomato Festival in Warren, King Biscuit Blues Festival, Ozark Folk Festival, Toad Suck Daze and the Tontitown Grape Festival.

Tax Climate  

The top individual income tax rate in the state is 6.9%, and the top corporate income tax rate is 6.5%.

The state sales tax rate is 6.5%, which ranks 9th in the nation. The combined state and average local sales tax rate is 9.41%, which ranks 3rd in the nation.

Other taxes that are of interest to consumers are the gasoline tax and cigarette tax. The state levies a gasoline tax of 21.8 cents per gallon, which ranks 40th in the nation, and a state cigarette rate of $1.15 per 20-pack, which ranks 33rd in the country.

Arkansas is consumer friendly in its approach to taxation of technology products for sales tax purposes. All digital products are exempt from taxation. Prewritten and custom computer software that are electronically downloaded are exempt from taxation. Lastly, all cloud services are exempt from taxation. How products are produced, sold and delivered is critical to determining its tax status.

Tax Incentives and Credits

The state of Arkansas offers a number of programs providing tax credits or other incentives which can reduce taxable obligations. Some of these include:

Venture Capital Investment Program- This program provides an income tax credit (for a state maximum of up to $10 million per fiscal year) as recommended by the Arkansas Development Finance Authority and approved by the State Board of Finance. The credit may not exceed the income tax otherwise due and is non-refundable. Any unused credit may be carried forward for five (5) succeeding tax years after the tax year in which the credit was first used.

Research & Development with Universities Tax Credit- This tax credit is for eligible businesses that contract with one or more Arkansas colleges or universities in performing research and may qualify for a 33% income tax credit for qualified research expenditures.

Have a question? Contact Monika Miles.

Your comments are always welcome!

Monika Miles

Monika founded Miles Consulting Group which focuses on multi-state tax consulting, helping clients navigate state tax issues such as sales tax and income tax in interstate commerce, including e-commerce.

Prior to forming the firm, Monika worked for 12 years combined in Big 4 Public Accounting and private industry. Monika has provided such services as federal and state income/franchise tax compliance and consulting, sales/use tax consulting, audit support, and credits and incentives reviews. She has served clients in a variety of industries including manufacturing, technology, telecommunications, construction, utility, retail and financial institutions.

Monika graduated from the University of Texas at El Paso (UTEP) with a BBA in Accounting/Finance and has a Masters in Taxation from San Jose State University.