Arkansas, often known for its natural beauty and outdoor recreational opportunities, is also a state with a complex tax structure.
The state’s tax rates can vary greatly depending on the types of taxes being discussed, such as income, sales, or property taxes.
It’s essential for both residents and those considering a move to Arkansas to have an understanding of the tax landscape in the state.
One key factor to consider is that Arkansas levies taxes on both food and clothing, contributing to a relatively high sales tax rate. The state has a progressive income tax structure, which means that tax rates increase as income levels rise.
On the other hand, property taxes in Arkansas are generally lower when compared to many other states.
However, there have been recent reports of personal property tax increases, which may impact some taxpayers in the state.
Key Takeaways
- Arkansas has a progressive income tax structure, high sales taxes and relatively low property taxes.
- Both food and clothing are subject to sales tax in Arkansas, contributing to the state’s high sales tax rate.
- Recent reports indicate a potential increase in personal property taxes for some Arkansans.
Overview of Arkansas Taxes
Sales Tax
Arkansas has a statewide sales tax rate of 6.50%. Additionally, there are local sales taxes, with the maximum local rate being 6.125%.
As a result, the average combined state and local sales tax rate in Arkansas is 9.46%, which is relatively high compared to other states1. This impacts both consumers and businesses, as it increases the overall cost of goods and services in the state.
Property Tax
On the other hand, property taxes in Arkansas are relatively low, making it more affordable for homeowners and property investors2. The state has a property tax system which takes into account the assessed value of a property and the applicable local tax rates.
However, it should be noted that property tax rates can vary based on factors such as property type and location within the state. Despite these variations, Arkansas’ property tax rates are still considered to be among the lowest in the United States.
Income Tax Rates
In Arkansas, individual income tax rates are graduated, meaning they increase with the amount of taxable income3. For 2021, the middle-income tax table is set up as follows:
- 0.75% on income up to $4,699
- 2.5% on income between $4,700 and $9,199
- 3.5% on income between $9,200 and $13,899
- 4.5% on income between $13,900 and $22,499
- 5% on income between $22,500 and $37,199
- 5.9% on income of $37,200 and above
Additionally, there are ongoing efforts to reform the state’s income tax system, including consolidating tax tables, cutting the top marginal rate to 5.3% by January 1, 2023, and increasing the low-income tax credit4. These changes aim to simplify the tax system and ease the burden on taxpayers in Arkansas.
Comparing Arkansas Tax Rates
State and Local Sales Tax Rate
In Arkansas, the combined state and local sales tax rate varies between different localities. The state sales tax rate is 6.5%, and local sales taxes can add up to an additional 5.5%, bringing the total sales tax rate up to 12% in some areas. This places Arkansas in the higher range compared to other states when it comes to sales tax rates.
Property Tax Rate
Arkansas has relatively low property tax rates compared to other states. The average property tax rate in Arkansas is 0.63% of the property’s assessed value, which is below the national average of 1.07%. This means that homeowners in Arkansas generally pay less in property taxes than homeowners in many other states.
Income Tax Rate
Arkansas uses a graduated individual income tax system, with rates ranging from 2.00% to 4.90% based on income levels. The state has different tax brackets depending on the taxpayer’s net income, with higher earners facing a higher income tax rate.
- For taxpayers with a net income of $84,500 or less:
- 2.00% on taxable income up to $4,499
- 4.00% on taxable income between $4,500 and $9,699
- 5.00% on taxable income between $9,700 and $18,099
- 5.90% on taxable income between $18,100 and $22,999
- 6.90% on taxable income between $23,000 and $35,099
- 5.90% on taxable income between $35,100 and $75,099
- 4.90% on taxable income between $75,100 and $84,500
- For taxpayers with a net income over $84,500:
- 2.00% on taxable income up to $4,499
- 4.00% on taxable income between $4,500 and $8,499
- 6.90% on taxable income over $8,500
Arkansas also has a corporate income tax rate that ranges from 1.0% to 5.3%.
While the state’s income tax system is more complex than that of many other states, Arkansas’s tax rates fall within a moderate range compared to the rest of the country.
Business and Corporate Taxes in Arkansas
Capital Stock Tax
Arkansas does not impose a capital stock tax on businesses. Companies incorporated or operating in the state are free from this type of taxation.
Local Sales Tax Rates
Arkansas has a state sales tax rate of 6.50%, with a maximum local sales tax rate of 6.125%, resulting in an average combined state and local sales tax rate of 9.46%. It’s essential for businesses operating in Arkansas to be aware of these rates and any changes that may occur.
Example Arkansas Sales Tax Rates:
- State Sales Tax: 6.50%
- Maximum Local Sales Tax: 6.125%
- Average Combined Sales Tax: 9.46%
Corporate Income Tax Rates
Arkansas levies a corporate income tax rate that ranges from 1.0 to 5.30%. In April 2023, the state’s top corporate income tax rate was reduced from 5.3% to 5%, making it more competitive for attracting and retaining businesses in the state.
Arkansas’ tax system ranks 40th overall on the 2023 State Business Tax Climate Index, which may give potential investors and business owners an idea of the state’s tax environment.
Arkansas Tax Exemptions and Special Cases
Inheritance Taxes
Arkansas abolished its inheritance tax in 2005, meaning that residents and their beneficiaries are no longer subject to this particular tax. Residents who receive an inheritance from another state may still be subject to that state’s inheritance tax laws, but they won’t have to pay inheritance taxes to the state of Arkansas.
Social Security
Social Security benefits are also exempt from taxes in Arkansas. This is a relief to many retirees, as it means that they won’t have to pay state income taxes on the Social Security benefits they receive. However, keep in mind that federal taxes may still apply to some portion of your Social Security benefits, depending on your total income.
Homestead Exemption
Arkansas offers a Homestead Property Tax Credit, which provides a credit of up to $350 on property taxes for homeowners who claim their primary residence as their homestead. This credit helps to reduce the overall property tax burden for many homeowners in the state.
Other special tax considerations in Arkansas include sales tax exemptions for certain industries and situations like motor fuel, water used in poultry farming, and a sales tax reduction on used cars priced between $4,000-$10,000. Also, starting from tax year 2021, tax practitioners are required to e-file if they electronically submit their clients’ federal income tax returns.
Arkansas Tax Policies and Trends
Recent Tax Cuts
In December 2021, Arkansas policymakers enacted income tax cuts, setting the state on its way to lower its top individual and corporate income tax rates from 5.9 percent to 4.9 percent and from 6.2 percent to 5.3 percent by 2025 source. These cuts are expected to help boost the state’s economy by making it more tax-friendly for both individuals and corporations.
Tobacco Tax
Arkansas also imposes a tobacco tax which contributes to the overall revenue used to fund state projects. The tobacco tax is levied on cigarettes, cigars, smokeless tobacco, and other tobacco products. The revenue generated from tobacco taxes is often used for various health and education programs within the state.
Tax Comparisons with Other States
When comparing Arkansas’ tax rates to those of other states, one can see that it’s not the lowest-tax state, but it’s also not the highest. The state income tax rates vary from 2.0 percent to 4.90 percent, while the corporate income tax rates range from 1.0 to 5.3 percent.
Arkansas’ sales tax rate is 6.5 percent, with a maximum local sales tax rate of 6.125 percent. The average combined state and local sales tax rate comes out to 9.46 percent, tying with Tennessee for the highest average state and local sales tax rate.
In terms of property tax, Arkansans have faced a considerable increase. In 2022, personal property taxes increased by an estimated minimum of 20% source.
When considering other states like Arizona, which is often regarded as a low-tax state, the comparison shows that Arkansas has room for improvement in its tax policies. However, recent tax cuts signal a positive trend in making Arkansas a more tax-friendly state in the future, benefiting both residents and businesses.
Arkansas Taxpayer Services and Resources
Department of Finance and Administration
The Department of Finance and Administration (DFA) in Arkansas provides resources and services for taxpayers, local governments, and businesses. It is responsible for administering the state’s individual income tax, corporate income tax, and sales tax, among other taxes. One useful service for taxpayers is the Arkansas Taxpayer Access Point (ATAP), an online platform designed to streamline the tax filing process. ATAP allows users to:
- File and pay taxes online
- View tax account information
- Communicate with the department
In addition to the online resources, DFA offers support through local offices and staff who can help answer questions and provide guidance on various tax issues.
Appealing Property Taxes
Property taxes in Arkansas are determined by local governments, based on the assessed value of a property. If a taxpayer disagrees with the assessed value, they have the right to appeal to the County Equalization Board. Here is a brief outline of the appeal process:
- Review your assessment notice: When you receive your property assessment notice, review it for accuracy. If you find discrepancies or believe the assessed value is too high, you may consider appealing.
- Request an informal review: Contact your local assessor’s office to request an informal review. This step is optional but may resolve the issue without a formal appeal.
- File a formal appeal: If you are not satisfied with the result of the informal review or choose to skip it, you may file a formal appeal with the County Equalization Board. The deadline for filing is typically 30 days after the assessment notice date.
- Attend the hearing: The County Equalization Board will schedule a hearing, where you can present evidence supporting your claim and make arguments for a lower assessed value.
- Appeal to the state level: If you are still not satisfied with the outcome, you may appeal to the Arkansas State Board of Equalization.
Remember to keep records, prepare your evidence, and follow deadlines to ensure a successful appeal process.
Frequently Asked Questions
Income tax rates in Arkansas?
Arkansas has a progressive state income tax system, with rates ranging from 2% to 6.6% for the year 2023. The tax is divided into four brackets, with each bracket having a different rate. Taxpayers should refer to the Department of Finance and Administration for the most up-to-date rate information and assistance.
Does Arkansas levy state income tax?
Yes, Arkansas levies a state income tax on individuals who earn income within the state. Most taxpayers in Arkansas are required to file an annual state income tax return. Consult the Arkansas Tax Guide for more information about filing requirements and deadlines.
Arkansas sales tax variations?
Arkansas has a state sales tax rate of 6.5%. However, there might be additional local sales taxes, which can vary depending on the city or county you are in. To determine the exact sales tax rate for your specific location, you may refer to the Department of Finance and Administration website for updated information on taxable items and rates.
Owing taxes to Arkansas state?
If your individual or business tax returns indicate an outstanding tax balance, you’ll need to pay what is owed to Arkansas. For more information regarding payments, deadlines, or extensions, you can visit the Arkansas Department of Finance and Administration website.
Arkansas income tax calculation?
Calculating your Arkansas income tax involves several necessary steps, such as determining your taxable income, applying the relevant tax rate for your income bracket, and deducting any applicable credits or deductions. To ensure accuracy, taxpayers can use the resources provided by the Department of Finance and Administration.
Paying Arkansas income tax online?
Arkansas taxpayers can make online payments for their state income tax obligations through the Department of Finance and Administration website. Various payment options are available, which may include credit card payments and direct debit from a bank account. Online payments are both secure and convenient for taxpayers.