BUSINESS TAXES AND EMPLOYEE TAX/INSURANCE REQUIREMENTS

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|  Corporate Income Tax  |  Franchise Tax  |  Sales and Use Taxes  |  Property Tax  |

|  Local Taxes  |  State Employee Income Tax Withholding  |

|  State Unemployment Insurance Tax Requirements  |  Worker's Compensation Insurance  |

|  Federal Income Tax Withholding  |  Federal Social Security and Medicare Taxes  |

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State Requirements

A good resource for tax information for businesses may be found at www.arkansas.gov/dfa/income_tax/documents/starting_a-new_business.pdf

Corporate Income Tax

Domestic corporations and all foreign corporations doing business in Arkansas are subject to tax on net income at the following rates:

The portion of income that exceeds each category is taxed at the next higher rate. For example, if a business has corporate net income of $125,000, the first $3,000 is taxed at 1 percent; the next $3,000 is taxed at 2 percent, and so on. Thus, only the $25,000 in excess of $100,000 is taxed at the maximum rate of 6.5 percent.  If business income is derived from activity inside and outside the state of Arkansas, it is apportioned for taxation according to the percentage of property and payrolls utilized in the state and sales attributable to Arkansas pursuant to the multi-state compact.  Contact: (501) 682-4775, www.arkansas.gov/dfa/dfa_taxes.html

Franchise Tax

The Arkansas Franchise Tax is an annual tax imposed on Arkansas corporations for the grant of charter privileges and on non-Arkansas corporations for the privilege of doing business. The due date for the tax is June 1 in the calendar year following the year of incorporation or qualification and each June 1 thereafter.  For a corporation incorporated under the laws of the state of Arkansas, the franchise tax is calculated by multiplying the number of outstanding capital shares by the par value (if no par stock, $25 is used) of those shares, then multiplying by 0.0027.  https://www.ark.org/sos/franchise/index.php

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Sales and Use Taxes

The Arkansas sales tax is charged on the sale of tangible personal property and certain selected services. The tax is paid by the consumer at the point of final sale and is computed on the total consideration received without any deduction for expenses. "Sale" includes the lease or rental of tangible personal property.  Vendors located and operating in Arkansas must register under the Gross Receipts Tax Law.  A business making sales of tangible personal property from outside Arkansas by means of sales persons, solicitors, distributors, agents, or by taking orders for sales of the same, must register under the Compensating Use Tax Law, www.arkansas.gov/dfa/excise_tax_v2/et_su_forms.html

Property Tax

The State of Arkansas does not have a property tax; however, Arkansas cities and counties do collect a property tax, which is the principal source of revenue for funding local public schools.  For more information, contact your County Tax Assessor: Columbia County, (870) 234-4171; Lafayette County, (870) 921-4808; Miller County,  (870) 774-1502; or Union County, (870) 864-1920.

Local Taxes

There are more than 300 local taxes in Arkansas since local taxes have become a reality. Most cities and counties have local taxes. Cities and counties have the authority to enact a local sales and use tax if it is passed by an election of the voters in their area. The local sales and use tax is collected by the state and not the cities or counties. It's then distributed back to the cities and counties every month.  www.arkansas.gov/dfa/excise_tax_v2/et_su_local.html

State Employee Income Tax Withholding

In addition to withholding federal employee income taxes, employers are required to withhold individual state income taxes on all employees who perform services for an employer doing business in, or deriving income from sources in Arkansas. Employers are required to remit the full amount deducted and withheld from the wages of all employees on a monthly basis.   An employer should request a registration packet from the Arkansas Withholding Section upon hiring the first employee.  The employer should complete the registration forms and return them with the required Federal Employer Identification Number (EIN).  Contact: (501) 682-7290,

www.arkansas.gov/dfa/income_tax/tax_wh_forms.html

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State Unemployment Insurance Tax Requirements

Every business in Arkansas pays an unemployment insurance tax. A business with no previous employment record in Arkansas is taxed at 3.3 percent on the first $9,000 of each employee's earnings until an employment record is established, usually within three to five years. The rate generally decreases to an average of 2.0 percent after an employment history is established.   Contact: (501) 682-3102,

https://www.employment.arkansas.gov/ERSWeb/ers/Security/WelcomePage.jsp

Worker's Compensation Insurance

Applies to businesses with 3 or more employees, less depending on the type of business. Proprietors and partners do not count as employees; however, all members of corporations do count as employees. Employers must post a sign in a conspicuous place informing employees how to handle a workplace injury.  Contact: (501) 682-3930, www.awcc.state.ar.us

Federal Requirements

Federal Income Tax Withholding

All employers are required to withhold income taxes from their employees’ wages for the Federal government. To know how much income tax to withhold from employees' wages, you should have all new employees complete a Form W-4, Employee's Withholding Allowance Certificate for Federal withholding, www.irs.gov/businesses/small/article/0,,id=172179,00.html

Federal Social Security and Medicare Taxes

By Federal law, all employers must withhold Social Security and Medicare taxes from an employee’s gross wages (7.65% up to a certain amount, 1.45% thereafter). The employer must also pay an equal amount for this tax. Depositing procedures vary depending upon the total amount an employer withholds from all employees. Current information on amounts to withhold as well as up-to-date employee income tax withholding taxes may be found in the IRS publication entitled Circular E, Employer’s Tax Guide.

www.irs.gov/businesses/small/article/0,,id=172179,00.html

Federal Unemployment (FUTA) Tax

The Federal Unemployment Tax Act (FUTA), with state unemployment systems, provides for payments of unemployment compensation to workers who have lost their jobs. Most employers pay both a Federal and a state unemployment tax. A list of state unemployment tax agencies, including addresses and phone numbers, is available in Pub. 926, Household Employer's Tax Guide. Only the employer pays FUTA tax; it is not deducted from the employee's wages. For more information, see the Instructions for Form 940.  

www.irs.gov/businesses/small/article/0,,id=172179,00.html