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State Tax Primer from A to W: Arkansas

December 30, 2008 · 26 comments

Welcome to my fourth in a series on state taxes! For information about what I’m trying to do, read my introductory bit. Next on the agenda, the bane of every elementary aged school child when it comes to spelling: Arkansas!

ARKANSAS

Population: 2,834,797 (32nd)

Capital: Little Rock

Largest City: Little Rock

Gross Domestic Product: $87 billion

GDP per capita: $27,875 (49th)

2008 election winner: John McCain

web site: http://www.state.ar.us/

Income Tax

Arkansas does collect personal income tax. Taxes are fixed according to a series of six brackets, depending on net income. For 2007, the brackets are:

    If net income is at least $0, but not more than $3,699, the tax rate is 1%;
    If net income is at least $3,700, but not more than $7,399, the tax rate is 2.5% minus $55.49;
    If net income is at least $7,400, but not more than $11,099, the tax rate is 3.5% minus $129.48;
    If net income is at least $11,100, but not more than $18,599, the tax rate is 4.5% minus $240.47;
    If net income is at least $18,600, but not more than $30,999, the tax rate is 6% minus $519.45; and
    If net income is $31,000 or more, the tax rate is 7% minus $829.44

There is a separate Low Income Tax Table which may be used in certain circumstances. Beginning in 2007, the Low Income Tax Table offers a full exemption to those with income below the federal poverty level. There is additional tax relief for taxpayers earning less than 133% of the federal poverty level income.

Arkansas residents are generally taxed on the same income that they report for federal income tax purposes. However, Social Security benefits, VA benefits, Workers’ Compensation, Unemployment Compensation, Railroad Retirement benefits and related benefits are exempt from tax. Additionally, there is a $6,000 exemption on taxable retirement income and a $9,000 exemption on military income per taxpayer.

Arkansas has an odd set of rules related to capital gains. Briefly, 30% of net capital gains are excluded from income with the remaining 70% treated as ordinary income. Short-term capital gains (held less than one year) are 100% taxable as ordinary income.

One interesting addition: beginning in 2007, Arkansas imposed a 3% flat tax on winnings from “electronic games of skill” (really, games of chance but the legislature has outlawed most of those – nonetheless, slots and the like are considered games of skill). Winnings which are taxed at 3% are not otherwise included as income to the taxpayer.

Some of the specific disallowed deductions for medical expenses were pretty funny… I mean, who doesn’t think that ear piercing should be disallowed as a medical expense? But apparently some folks do since it made it onto the list. Also on the list? Tattoos, maternity clothes, “spiritual guidance” (not kidding) and a gravestone. Note to residents of Arkansas: if you’re purchasing a gravestone, no further medical deductions are necessary. Just saying.

And those Arkansas politicians aren’t stupid: on your Arkansas tax return, you may take political contributions as a tax credit (up to $50 per individual and $100 per couple) in each tax year.

Arkansas does participate in the Set Off program. An Arkansas state tax refund will be taken to satisfy any outstanding liabilities owed to the State of Arkansas or to the Internal Revenue Service; a federal refund will be taken for same.

Sales Tax.

Arkansas sales tax is 6%. Some cities and counties may add a local sales tax, bringing the rate to as high as 8.5-9% across the state.

Sales tax is imposed on most retail goods and some services. Sales of food are taxed at a reduced rate of 3%. Prepared food and dietary supplements are taxed at 6%.

An additional mixed drink tax of 10% is imposed on the sale of alcoholic beverages (excluding beer) at restaurants. A 4% tax is imposed on the sale of all mixed drinks (except beer and wine) sold for “on-premises” consumption. There is a 3% “off premises” tax on retail sales of liquor and wine, and an additional 1% tax on sales of beer.

Sales of prescription medicines are exempt from sales tax. Additionally, sales of insulin and test strips for diabetes testing are exempt from sales tax.

Tobacco Tax

Arkansas’ tax rate on cigarettes is a low $.59 for a package of twenty cigarettes, ranking them 33rd in the country. The national average is $1.14 per pack.

There is a proposal – being met with much resistance – to raise the tax on cigarettes by $.50 in 2009.

Gas Tax

The gas tax rate in Arkansas is $.218 per gallon (the 19th lowest in the country).

Property Taxes

In Arkansas the property tax generates revenue for school districts (77%), county (15%) and city governments (8%). Additional special district taxes may apply.

In 2002, property taxes accounted for 16% of Arkansas’ state and local tax revenue, about half the national average of 31%. Only five states (West Virginia, Kentucky, Alabama, New Mexico and Louisiana) rely less on property taxes than Arkansas (source: US Census).

The average 2003 property tax rate was tax rate of $47.81 for every $1,000 of assessed property (source: Arkansas Assessment Coordination Dept).

Inheritance and Estate Tax

Arkansas does not impose an inheritance tax or a gift tax. Like most states, Arkansas no longer has an estate tax since it was tied to the federal estate tax state death tax credit.

Miscellaneous Tax

As a beauty pageant girl (see, there’s lots about taxgirl that you didn’t know), I couldn’t let the miscellaneous tax for “beauty pageant registration fees” go by without a mention. Rates vary.

There is also a soft drink tax collected by every distributor, manufacturer, or wholesale dealer in Arkansas (sorry Dad).

Overall Tax Burden

The overall tax burden in Arkansas, taking into account taxes paid by individuals, results in a ranking as 14th most-tax burdened state in the country, according to Tax Foundation. Arkansas’ tax burden ranking has been dropping for a number of years – many pundits credit former Governor Huckabee.

taxgirl says

Arkansas is an interesting state when it comes to taxes. Like Alabama, it has a relatively low GDP per capita. Yet, the tax burden by percentage is higher than the national average.

And it’s not just the numbers. The income tax structure is overly complicated – six tiers? Really? With a span of 1% to 7%? That’s a big difference. And a top rate of 7% puts Arkansas near the top of the country in terms of maximum tax rates.

The sales tax system is regressive. Taxes on food – including groceries and prepared foods – are generally most difficult for those with lower incomes. The sales tax rate also stands above the national average. Overall, Arkansas is a low income state. A regressive, high sales tax a low income state seems a bit incongruous. Interestingly, many organizations in Arkansas have protested an increase in the cigarette tax with the regressive tax argument – I wonder why there isn’t much outcry about the existing sales tax?

Even with a relatively high tax burden, Arkansas still depends on the feds for extra funding. Like Alabama (but unlike Arizona), Arkansas taxpayers receive more in federal funding per dollar of federal taxes paid than the average state. In 2005, Arkansas citizens received approximately $1.41 of federal spending for every $1.15 paid to the Treasury.

When it comes to property taxes, Arkansas can boast some of the lowest in the nation. Since the schools are the biggest recipient of property tax dollars, you’d expect education to suffer. Yet, Arkansas sits more or less in the middle of high school graduation rates (source: Manhattan Institute). This means one of two things: either Arkansas receives federal funding to put towards its schools or increased school dollars don’t always correlate to educational success. I haven’t been able to figure out which.

So, low property taxes, regressive sales taxes and income taxes that are all over the place. It’s hard to characterize Arkansas’ tax structure other than to say that the overall burden remains relatively high compared to taxpayer income. As federal dollars certainly shrink, it will be interesting to see how Arkansas compensates: you can’t get blood from a stone.

Anyone from Arkansas want to chime in? I’m curious to hear whether Governor Beebe is a popular choice in a post-Huckabee economy…

(Note: tax rates were current as of 12-28-2008 and were taken from the AR Department of Revenue web site unless otherwise noted.)

{ 25 comments… read them below or add one }

1 Eric Hundin December 30, 2008 at 10:16 am

I found your blog on MSN Search. Nice writing. I will check back to read more.

Eric Hundin

2 Angela December 30, 2008 at 9:54 pm

I was pleasantly surprised when I first moved to AR 10 yrs ago and discovered my RE taxes were nearly zip, nada, nothing. No kidding! Have 10 acres w/mobile home and pay less than $100/yr on the taxes after the $300 Homestead credit is applied.

Auto registration? Moved there from Chicago. REALLY happy because I only had to pay $25 to register each vehicle. IL wanted us to pay $1200 sales tax + registration fees on a leased vehicle on which we had already paid sales tax in the lease agreement when we leased it in MO when we were residents there. Needless to say, we parked that vehicle (we had 3 at the time) until we moved to AR.

And THEN I went shopping…for food…household products…clothing…office supplies…furniture…phone service…cable TV…etc…etc, and it was GOTCHA! :-) Would you believe 9% sales tax where I currently reside in AR in a town of about 9000? Some of my AR clients’ sales tax rate is 10% as of 10/01/2008 with food tax being 7% (city, county, state combined) and they are in small towns, too (where most of the poverty is).

As for the mixed drink and beer taxes…well, you can only buy those items in about half the counties in AR because all the others are dry counties. NO alcohol sales of any sort in dry counties. In some of the dry counties you’re illegal if you even have more than a case of beer or a gallon of wine/liquor in your possession. Gotta keep those bootleggers under control, ya know. ;-) (Note to self: Clean out…)

I’m not certain, but maybe some of the Federal funding is to benefit eastern AR which is in the Delta region (2nd poorest region in USA after the Navajo Nation region in the southwest IIRC). Also, in the last 7-8 yrs there was a LOT of new interstate/highway improvements/resurfacing in AR. Mega $$$’s when into that because it was almost a major rebuild/overhaul of I-30 and I-40 that was BADLY needed.

3 Angela December 30, 2008 at 9:59 pm

Oh yeah, for some really interesting reading re: taxes, Google “Texarkana, AR” + taxes.

4 Kelly December 30, 2008 at 10:29 pm

Angela, thanks for the information! I love hearing personal experiences with the tax structures – it adds a nice perspective. I am Googling as you read this…

5 Angela December 30, 2008 at 11:00 pm

You’re welcome! Texarkana, AR taxes have some real twists to them.

6 Angela December 30, 2008 at 11:53 pm

Kelly, comments in the article at the following link give some perspective re: Texarkana, AR, income taxes/property taxes and their major employer, Cooper Tires. I pity their PR clerks.

http://www.arktimes.com/blogs/arkansasblog/2008/12/annals_of_corporate_welfare_1.aspx

7 Chuck December 31, 2008 at 10:04 am

Angela,

After I graduate from grad school at Stephen F. Austin University, I am looking to relocate back to Arkansas where I am from originally. Do you know of any jobs at a public firm in tax? Any help would be much appreciated. My email is ashleyandchuck at gmail dot com.

Thanks,

Chuck

8 Cindy King January 6, 2009 at 3:22 am

I enjoy this type of post, it would be interesting to see you do the same thing for different countries.
I help people expand their business to international markets, and having this type would be a great resource for me to point people to, so they could have an idea of what waits for them in the markets that they are expanding into.

9 Kelly January 6, 2009 at 7:08 am

Hi Cindy -
That’s definitely next on my agenda! ;) Thanks for reading!

10 Christy Jackson April 22, 2009 at 1:13 pm

My Husband’s Dad passed away in 2005 and he and his brother are the only heirs. His dad was the last living heir when their Grandma passed away. All of the estate went to their Dad. Grandma always wanted her grandkids in LA to have some of the estate but things were never taken care of where they would inherit any of the estate. We would like to honor Grandma’s wishes, but have been told we will have to pay a tax if we just give them the land, is this true? We live in Arkansas.

11 Joseph September 27, 2009 at 10:48 am

My wife and i filed income taxes together ,i am retired and she didn’t make but $17,000 and my social security was around $21ooo and irs say we owe $1882 thats a mighty heap of tax on $17000 since minen is exampt don’t you think

12 Karen November 16, 2009 at 2:03 pm

Great site! I love how you write. It’s actually enjoyable to read about taxes here. One edit, immediately under “Sales Tax” you say “Arizona” but sure sounds like home; pretty sure you meant to write Arkansas. :)

Prop taxes, homestead credit, real estate purchase prices – all a great deal here in AR. But yeah, the good news pretty well ends there. Taxes in Ft. Smith & Fayetteville are 9.25%. In Fayetteville, food tax is 5.25% and non-food items bought in grocery stores are charged 9.25%. Except for wine made in Arkansas (and we’re not exactly known for our wine…), wine is only available at liquor stores, where tax is about 11% on wine & beer & 14.25% on liquor, if memory serves.

One other tax tidbit that I find peculiar is that property taxes here are charged one year in arrears, and everyone is responsible for “assessing” (declaring) their prop on which they owe tax with the assessor’s office. In practice, this means if you sell a car say in Jan 2009 and buy an SUV at the same time, you have to remember to assess the car and then pay taxes on it in 2010, when you no longer have it, but you also have to pay taxes on the SUV because you did have it the previous year. And these taxes are not pro-rated based on how long you owned or didn’t own the vehicles. Make sense? Welcome to Arkansas!

To further confuse things, the homestead exemption is a $350 credit towards your primary residence’s prop tax, and it too is charged a year in arrears. We have a house on which we get that credit, and then we bought a small condo also in AR. When the prop tax bill came for the condo, they had credited us the homestead exemption, so I paid that $350 anyway and wrote a note explaining that we weren’t entitled to the exemption as this was not our primary residence. They refunded my money, so I called, and they told me that because the man who owned this condo *last* year was entitled to it, we get it for this year on this property. Does this mean after we sell, the next buyer will have to pay that $350, even if it is their primary home, because we were not entitled to it the year before they bought it? The logic fails. The tax office was unable to give me an answer about that, and just said to call back if/when it becomes an issue.

Hate to say it, but there are reasons that Arkansas has a bit of a backwards reputation in the eyes of some. Myself included.

13 Kelly November 16, 2009 at 5:18 pm

Thanks, duly noted and edited!

14 Leon January 19, 2010 at 1:33 pm

This is excellent information. My wife and I are considering moving to Arkansas in a couple of years. We are curretnly retired, and we moved to Ohio (from Texas) to take care of my wife’s mother, who is 87. We do not plan to remain in Ohio and we have always liked the Hot Springs area, so are looking at the possibility of relocating there or Hot Springs Village. It is nice to be able to come to one site and get information about the various tax structures for the state. I’m still wading through the material, but at least I now have a central location and then can ask questions as I go.
Thank you !!

15 Casey January 24, 2010 at 11:40 am

I have been working and living in SC all year, but I pulled out my state teacher retirement in Arkansas. I have a Form 1099R and the column 7 had a dist. code 1. So, I owe 10% penalty? Also, do I file a seperate return in Arkansas or file this with SC. How much should I anticipate to have to pay on a gross and taxable amount of $9,910.46

16 Roy Hughes February 9, 2010 at 6:28 am

We have a Louisiana Retailer’s License for Mobile Home Sales. If we purchase a used mobile home located in Arkansas, is there any sales taxes to be paid? Where do I go to enter the VIN # to see if any back taxes might be due. There is no sales tax on mobile homes in Louisiana.

Please advise…Thank You…Roy Hughes

17 K L McKinney March 16, 2010 at 10:13 pm

How much is the capital gains tax rate on principal residence in Arkansas?
Does it follow the Fed in allowing a certain amount of gain before it is taxable?

18 Kelly March 17, 2010 at 7:59 am

KL – I don’t know the answer to that but hopefully someone on the blog is familiar with those rules.

19 Doc July 4, 2010 at 2:14 am

The facts for Arkansas is that the state has and has had a great deal of corruption that goes back further than the kings of corruption, Clintons. I had a due diligence performed on Arkansas to decide if I should move one or more of my businesses in biotechnology to that state. It boils down to really bad leadership. Huckabee did absolutely nothing and his performance can be verified by reviewing his highly documented poor record of accomplishments. We found that the Bum actually increased overall taxes. There are two main issues with Arkansas. The first is the high number of government employees at wages of 16 to 25% higher than equivalent industrial positions. E.g., I checked today and a position is open now for a person to coordinate meetings at $45,000 – $63,000 That job in my company pays $34,000 like all industrial companies. Of course to pay for all the “VOTING” positions for Democrats, there must be a range of taxes. Understand that the real wages of Ark citizens have declined by 3%over the last ten years. If a citizen was making $30,000 in 1990, in 2010 that poor citizen is making $29,100. The respective state, government employee has seen an increase of roughly 3% per year. There is NO impact on government wages. Someone has to pay for it, and since goernment produces nothing the workers of the state pay for it. This is a tremendous burden for citizens of Arkansas..more than they will ever know. It is the spoils system at its best (worst). The second major issue is the property taxes on businesses. It is simply astounding. The property tax details is a 130 page detailed document on every possible tax on a business imaginable. In the case of a restaurant, the poor restaurant owner must assess his pots, pans, utensils, tables, inventory (food,beverages, etc.), square footage, and compile a detailed list on which the property tax is paid…what an ordeal! In addition,the owner will pay income tax and sales tax. In Arkansas the business owner cannot charge for the impact so profits are less, due to lower COL. There are counties in ARK, e.g that have over 84% of the people with educations: HS, BS,graduate and are among the top 100 counties with the most highly educated people having the lowest wages in the country. If I moved my busines to ARK I would have an extra burden that would require two additional hires to comply with the ARK taxes. The impact on profit would be close to 25%. Of course that is why no one except psychotics would move or start a business in ARK. That hurts the citizens, and explais ARK position as 49th in GDP. A reflection of ARK poor government. All the dumb-bells, including Hucksteer Huckabee, need to do is compare their SOP with states like Texas. Ark is a very sad state of affairs, and I was particularly disheartened as I would have liked to move at least one of my businesses into the state to help some of the good, hard-working, decent citizens who must endure a political and government environment that would rival AL Capone’s organization or serve as a model for Joe Stalin. Can you imagine a state that is 49th in GDP with the 14th highest tax burden coupled with no industrial or strong agricultural base!! A tribute to the statues of Clinton that one sees everywhere and to people like Huckabee. They should be ashamed to their graves.

20 Hermit September 15, 2010 at 2:53 pm

I couldn’t agree more with Doc. I’ve seen it first hand since I moved here from a real state (one that isn’t a joke, raping its citizens for higher taxes although one of the poorest states) about 25 yrs ago. I’m ready to vote with my feet and sell these secluded 71 lakefront acres & home on Beaver Lake in Benton County. (Contact me if you know someone who might be interested.)

The original figures need updating: GDP per capita now ranks 46th.
Total state taxes rank now 28th. But for one of the poorest state, this is still
deplorable!

Arkansas still taxes food in all forms whether grocer store or restaurant, but
at vastly different rates: simple, unadulterated food (like apples) @ 3%; but
add another ingredient like the cheese coating on chips, and the rate goes to
6%; eat in a restaurant and the rate goes to 10%. Taxing food is abominable!

Over the years I’ve seen my county pave roads with fewer residents with no important infrastructure like the water treatment plant a mile from me. We’re still dealing with six or more miles of dirt road which is wrecked regularly by a road grader. Perfectly smooth stretches which don’t need any
attention are left torn up with a couple of inches of loose dirt & rocks. Two steep hollows get no attention when needed, like after a snow or ice storm.

I moved here and built a house 25 yrs ago because land prices seemed 50 yrs
behind some of the real states I investigated. Local mentalities are are on a
par with GDP statistics.

This is the same county where Chi-Mart (read WalMart) corporate HQ is located. Because there is sparse competition, it charges more for groceries
than other cities where competition abounds.

When I built my house, no permit was required. Now, it’s paperwork city.

But, it’s not all bad. Annual renewal for a motor vehicle is only $17 or so. No
safety inspection necessary.

No wonder this state can’t entice industry here, it’s not business friendly.
Thank goodness I didn’t relocate to run a business!

I still enjoy spearfishing in the lake and the quiet seclusion of the woods, but
the more I know about how things are run here and where they’re headed, the more I am ready to get the fooga-da-booba out of here!

(I could have gone on about my personal experience with property taxes & assessments, but you probably get the general idea.)

21 Tony Tran February 4, 2011 at 3:43 pm

We recently moved into Texarkana, AR, right between the stateline of the two, Texas and Arkansas. We are still wondering if it is better to live in which side.
Which one do you folks believe we should live in? Arkansas or Texas? Which one has lower cost?
Thank you very very much in advance!!
Tony

22 Hermit February 6, 2011 at 2:00 pm

Tony,

If you have children, look at the schools.
If you are buying property, compare property taxes.
If you DON’T want to pay state income tax: Texas
If you want to live in a REAL state, Texas.
AR is the 47th poorest state.
If you want better roads, Texas.
Did I leave out anything?

23 Kathy March 17, 2012 at 11:29 am

I am trying to research for a friend living in Missouri. He wants to know the death tax rates of Arkansas and of Missouri. Can you help me in this? Thanks.

24 Leon July 20, 2012 at 3:15 pm

What does property rate code 20 mean and what does it apply to? I’m looking at a place in Hot Springs County and saw that listed with a property.

25 Hermit July 21, 2012 at 3:38 pm

Leon,

Call the County Assessor or learn to use Google

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