State of Arkansas Franchise Tax: Everything You Need to Know
The state of Arkansas franchise tax is an annual requirement for businesses that conduct business out of the state.3 min read
2. How to File the Arkansas Franchise Tax
3. Who Files an Arkansas Franchise Tax Report?
4. What Kind of Tax Will You Owe on Arkansas Business Income?
The state of Arkansas franchise tax is an annual requirement for businesses that conduct business out of the state.
What is an Arkansas Franchise Tax Report?
Regardless of business activity or income, all Arkansas limited liability companies (LLCs) must file reports and pay $150 annually. Combined, these two aspects become the annual LLC franchise tax report.
You must submit payment online or via mail by May 1. Filing online is faster, and the state usually processes the payment within a day, compared to several weeks when sent by mail. Failure to pay can result in the state closing your LLC.
How to File the Arkansas Franchise Tax
You can submit payment as early as Jan. 1. To pay by mail, download the annual franchise tax PDF form. Make a check or money order out to the Arkansas Secretary of State and mail along with your paperwork.
To pay online, go to the business entity search page and enter your information. Follow the prompts to pay the tax.
Who Files an Arkansas Franchise Tax Report?
Domestic and foreign nonprofit corporations in Arkansas must file annual reports. Charities must file annual registration renewals with the Arkansas Attorney General. Limited partnerships (LPs), limited liability partnerships (LLPs), and limited liability limited partnerships (LLLPs) in Arkansas must also file. Due dates for Arkansas-based organizations vary:
- Annual franchise tax reports are due May 1.
- Annual partnership reports are due May 1.
- Annual nonprofit reports are due August 1.
- Annual renewals for charities are due May 15.
What Kind of Tax Will You Owe on Arkansas Business Income?
Almost every state taxes business income earned within the state. How the state determines the amount of tax depends on the legal form provided by the business. In addition, tax rates typically vary among each state, with corporate rates ranging from 4 to 9 percent. A few states don't have corporate income taxes.
In many of these states, corporations must adhere to corporate income taxes. Income from S corporations, LLCs, sole proprietorships, and partnerships must deal with a state's tax on personal income.
Some states impose franchise or privilege taxes for the right of operating businesses. Franchise taxes are usually either a flat fee or based on a company's net worth.
The state of Arkansas has a corporation franchise tax and graduated corporate income tax. Depending on your company's legal form, you might have to pay one, both, or neither. If your business goes through you personally, the income could be taxed and dealt with on your personal state tax return.
The tax rates increase depending upon the higher amounts of income, with the breakdown as follows:
- Net income up to $3,000 taxed at 1 percent
- Net income from $3,001 to $6,000 taxed at 2 percent
- Net income from $6,001 to $11,000 taxed at 3 percent
- Net income from $11,001 to $25,000 taxed at 5 percent
- Net income from $25,001 to $100,000 taxed at $940, plus 6 percent of any amount more than $25,000
- Net income of more than $100,000 taxed at $5,440, plus 6.5 percent of the amount more than $100,000
Corporate income tax payment is due 2.5 months after the end of the tax period. If your tax year follows the calendar year, your payment is due March 15.
As stated, Arkansas businesses must pay taxes, and the type they pay depends upon their franchise type:
- Arkansas corporations: This type of entity must submit the state's corporation franchise tax and graduated corporate income tax.
- S corporations: An S corporation usually does not need to pay a separate federal income tax. However, taxable income from this entity goes through to the individual shareholders, and each shareholder must pay federal taxes. Arkansas is different than other states in that it doesn't recognize the federal S election. You must file a federal form and Form AR1103. You must also pay the state's corporation franchise tax but not the state's corporate income tax.
- LLCs: Similar to S corporations, LLCs are pass-through entities. Income goes to each LLC member, and these members pay federal and state taxes. LLCs also must pay the minimum corporation franchise tax of $150.
- Partnerships: Income from this entity goes to each individual partner. The partners pay taxes on this amount on federal and state tax returns.
- Sole proprietorships: Income from the business goes back to the owner, who pays taxes to the state.
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