Arkansas LLC Taxes
Navigating the tax landscape for a limited liability company (LLC) in Arkansas is essential if you want to ensure both the legal compliance and financial health of your business.
In this article, we'll explore the various Arkansas LLC taxes you might be required to pay, from income to franchise taxes. We’ll also show you how to manage and file your taxes in Arkansas step by step, helping to make sure your business stays on the right side of state regulations.
Recommended: Schedule a free consultation with 1-800Accountant to stay on top of your taxes.
How Is an LLC Taxed in Arkansas?
Taxation in Arkansas isn’t applied in the same way to all LLCs – instead, it varies depending on a number of factors, such as an LLC’s nature, locality, and tax election.
While LLCs typically benefit from pass-through taxation by default, they can elect to be taxed as one of the following:
- C Corporations: The LLC is treated as a separate entity to its owners, paying corporate income tax rates on its total profit while the owners also pay personal income taxes on any distributions they take.
- S Corporations: In return for paying owners a “reasonable salary,” the LLC’s remaining profits are distributed among members without a need to pay FICA or self-employment taxes on them.
The following sections go into the various tax responsibilities of your LLC at local, state, and federal levels in Arkansas to help you ensure your LLC navigates them effectively.
Arkansas Local Taxes
The local laws and tax regulations differ greatly between different localities in Arkansas, where there are currently a number of unique taxes in place at a local level.
Below is a list of tax types that your city or county may impose:
Sales and Use Taxes
In Arkansas, many localities impose their own additional sales and use taxes that must be paid on top of the statewide rate. It’s up to each city and county to decide whether to impose a local sales tax and, if so, the rate at which it will be charged.
For example, the city of Clarendon currently has the highest local rate at 4%, while the average is closer to between 1% and 2%. It’s worth noting that while city and county rates may sometimes combine, the total local rate is capped at a maximum of 6.125%.
Note: To see how much you’ll need to pay in your local area, you can use this Local Tax Lookup Tool for Sales and Use Tax in Arkansas.
Since there’s no statewide property tax in Arkansas, it is instead collected by individual cities and counties. The amount your business will owe in property taxes is calculated based on 20% of the assessed value of its real and personal property — which the local assessor in your county will estimate.
If your business has inventory (like goods for sale or materials for manufacturing), the average annual value of these goods will also be taken into account by your county assessor when calculating your business’s final property tax bill.
Note: To help you find the relevant contact information and filing requirements in your county when looking to pay your local property taxes, you can use the State of Arkansas’ Property Tax Center.
Recommended: Schedule a free consultation with 1-800Accountant to ensure your business remains legally compliant.
Arkansas State Taxes
Every state has its own regulations and rules that dictate how it taxes individuals and businesses. Below is a list of the most relevant state-level taxes for Arkansas LLCs.
This group of taxes refers to the charges imposed on the earnings of individuals and business entities that operate within the state. There are two main types of Arkansas income tax to be aware of:
Personal Income Tax
If your LLC will be taxed as a disregarded entity, it will be subject to personal income tax. In Arkansas, this is a gradual tax on your net income that varies between 0.09% and 4.7%. There are actually two distinct rate schedules for this tax that can apply depending on whether your business earns more or less than $84,500.
If you earn a net income of $84,500 or less, the following rate schedule applies:
|Personal Income Tax Rate
|$0 to $5,099
|$5,100 to $10,299
|$10,300 to $14,699
|$14,700 to $24,299
|$24,300 to $87,000
If you earn a net income exceeding $84,500, the following rate schedule applies instead:
|Personal Income Tax Rate
|$0 to $4,400
|$4,401 to $8,800
|$8,801 and over
As you navigate these personal income tax considerations, it's equally important to understand the nuances of corporate income tax, which we will explore in the next section of this article.
Corporate Income Tax
The second Arkansas state income tax is levied against the total taxable income generated from business activity within the state by corporations (or LLCs that have elected to be taxed as them). The corporate tax rate varies between 1% and 5.3% according to the following fee schedule:
|Net Taxable Income
|Corporate Tax Rate
|Less than $3,000
|$3,000 to $6,000
|$6,000 to $11,000
|$11,000 to $25,000
|$25,000 or more
Understanding these intricacies of Arkansas income tax is crucial for individuals and businesses as they form a central part of your statewide tax responsibilities.
Note: If your business makes any income through capital gains, the first half of this net gain is exempt from income tax in Arkansas, regardless of which one your LLC pays.
Arkansas sales tax is imposed at a flat rate of 6.5% on the gross receipts of tangible goods and certain services sold within the state. Since this is payable in addition to any local rates, the total sales and use tax you may need to pay could vary up to as much as 12.625%.
Similarly, Arkansas use tax is applied at the same statewide rate on tangible personal property that has been bought outside the state but used or stored within it.
Most physical goods (i.e., personal property such as clothes, electronics, and furniture) are taxable – though there are some sales and use tax exemptions in Arkansas, such as:
- Dental appliances sold to dentists
- Sewer services
- Timber harvesting equipment
In addition to this general requirement to collect sales tax, there are a number of additional taxes that are levied on the sale of specific products in Arkansas. We’ve included some examples of these taxes, as well as their respective rates below:
- State Electricity Manufacturing Tax: 1.625%
- Liquor Excise Tax: 3.0%
- Mixed Drink Tax: 10.0%
- Wholesale Vending Tax: 7.0%
These are only a few of the sales taxes in Arkansas that are specific to certain goods or services. To make sure your LLC is compliant, regardless of what it sells, it's a good idea to talk to an accountant who can help you understand your LLC’s specific sales and use tax requirements.
Note: To see the full list of these separate sales taxes, see the Arkansas Department of Finance and Administration website.
Unemployment Insurance Tax
This is a gradual tax that employers must pay on the first $10,000 of each of their employee's wages during the calendar year. Businesses with less than three years of unemployment insurance payments are assigned the “new employer rate” of 2.9% – after which they switch to the base rate.
The base rate ranges from 0.1% to 14% depending on your “reserve ratio”, which is essentially an indicator of your business’s financial health that’s used when determining the base rate it must pay. Generally, the higher the reserve ratio, the lower the unemployment tax rate you’ll need to pay, as it suggests your business is financially stable and thus less likely to lay off employees.
Your business will be considered an “employer” for the purposes of paying unemployment insurance tax if it:
- Has had employees for at least part of 10 days in a year;
- Takes over a business already paying these taxes;
- Pays domestic workers $1,000 or more in cash wages in one quarter;
- Pays agricultural workers $20,000 or more in cash wages, or you’ve employed ten or more of these workers for any part of a day in 20 different weeks in a year; or
- Elects to use unemployment insurance even when not required.
For a deeper dive into the employer taxes your business may need to pay, as well as more detailed guidance, check out the Arkansas Employer Handbook.
Regardless of where your business is located, if you run an LLC in the US, there are a number of federal taxes you’ll need to pay. Below are some of the main types your LLC may be required to pay for federal tax purposes:
By default, the Internal Revenue Service (IRS) will not treat single and multi-member LLCs as a separate entity from you for federal income tax purposes. What this means is that you’ll need to report your share of your LLC’s profits on your individual tax returns and pay federal income taxes on them at the personal rate of your tax bracket.
Having said that, keep in mind that LLCs can also elect to be taxed as C corps or S corps, which changes how these taxes are levied in different ways.
In addition to income tax, members of single- and multi-member LLCs will need to pay federal self-employment tax on the share of the business’s profits that they report on their personal tax return at the end of the year.
This tax is levied at a flat rate of 15.3% against businesses with net earnings that exceed $400, though it is applied slightly differently to LLCs that have elected to be taxed as S corps or C corps.
If your LLC hires any employees, it will need to withhold a portion of their salaries to cover various types of taxes on your employees’ behalf – including Social Security, Medicare (FICA), and payroll taxes.
Furthermore, the members of any LLCs that have elected to be taxed as an S corp will be required to pay taxes on their salaries. However, in return for these employment taxes, the remainder of the business’s profit after these salaries have been distributed will be safe from both self-employment and FICA taxes.
If your LLC engages in certain types of business (such as the sale of alcohol and tobacco or operating a heavy highway vehicle, among others), it may need to pay federal excise taxes in order to do so legally. Each excise tax comes with its own set of rules, rates, and filing obligations you’ll need to be aware of.
Understanding and fulfilling these federal tax obligations is crucial for keeping your LLC compliant and avoiding unnecessary financial penalties and/or fines.
How to File LLC Taxes in Arkansas
Below, we’ve outlined the general process an LLC in Arkansas will need to follow in order to file their tax return correctly. Note that the specificities of each step will vary slightly depending on how your LLC is organized and the specific locality it’s based in.
Step 1: Gather Your Documentation
To ensure accurate tax filing, thorough record-keeping is essential. Begin by collecting your personal information, including:
- You and your partner’s Social Security number, date of birth, and residential address
- The previous year’s tax returns
- Your LLC’s Employer Identification Number (EIN)
Then, you’ll need to gather all documentation related to your business’s income, such as:
- Invoices you’ve issued
- Sales transaction logs
- Electronic payment reports from services like PayPal or Stripe
Lastly, assemble all records pertaining to your business expenses, which should cover:
- Lease receipts for your business premises
- Bills for utilities
- Records of office supplies purchases
- Documentation of business-related travel
- Payroll records for employees
Note: Depending on how your LLC is organized and its tax election, you may need different information for your tax return.
Step 2: Find The Right Tax Forms
Once you've gathered all necessary documents, the next step is to select the correct tax forms for your LLC based on its organization:
- Single-Member LLCs: The business’s total income and expenses are reported on a Schedule C form, which is attached to the owner’s personal tax return and due by April 15 or the following business day if it lands on a weekend or holiday.
- Multi-Member LLCs: File an information return using Form 1065. Members must fill out a Schedule K-1 showing their individual earnings or losses by March 15 or the next business day.
- C Corporations: File a corporate tax return using Form 1120 by the April 15 deadline or on the next business day if it's a weekend or holiday.
- S Corporations: Use Form 1120-S for the corporate tax return and distribute Schedule K-1 forms to shareholders for reporting their shares of profits or losses. The deadline for filing taxes using 1120-S is March 15 or the following business day.
Since state and local taxes will have their own individual forms and requirements, we recommend contacting your municipality or hiring an accountant for guidance.
With the appropriate documentation gathered and the correct tax forms for your business entity on hand, you’ll be ready to fill them out and submit them.
Step 3: File Your Taxes
The majority of businesses choose electronic filing for its speed, enhanced security, and reliability compared to paper filing, which can be slower and more prone to errors. Here’s how it works:
- Federal Tax Returns: The IRS provides two electronic services for tax submission: Free File for businesses with an AGI below $72,000 and Free Fillable Forms for those above the threshold.
- State Tax Returns: Depending on the individual tax, the specific form and filing requirements can vary. However, you can typically use the Arkansas Taxpayer Access Point (ATAP) to file the majority of your taxes electronically.
- Local Tax Returns: The filing requirements can vary depending on the specific tax, so be sure to contact the local governing agency in your locality for more information.
Note: These electronic filing tools are best suited for those who are already confident in handling their LLC taxes as if filling out a paper form.
For new business owners, we recommend opting for the expertise of a tax professional in order to ensure both accuracy and compliance in your tax filings.
Recommended: Schedule a free consultation with 1-800Accountant to stay on top of your taxes.
Keep Your Arkansas LLC Compliant
While LLCs are generally easier to maintain than corporations, there are certain state and local formalities your LLC must satisfy in order to remain compliant.
Arkansas Franchise Tax Report
When running a business in Arkansas, you’ll need to file an Arkansas Franchise Tax Report with the Secretary of State (SOS) annually in order to stay compliant. Below are the steps to filing this report:
- Determine Your Fee and Due Date: Each type of business entity has a specific fee and a due date for its franchise tax report. For LLCs, it costs $150 to file your report, and filing must be completed by May 1.
- Complete the Tax Report: You can either fill out this form online or by using a paper version. Note that, regardless of the method you choose, you’ll still need to visit the Arkansas Secretary of State website in order to complete this step.
- Submit Your Report and Payment: The final step is sending your completed report along with the payment to the Arkansas Secretary of State. If you’re submitting by paper, you’ll need to use the mailing address for the SOS’s office on the second page of the form.
If you submit this report late, your LLC will be charged a flat fee of $25 on top of a 10% interest charge on the amount you owe. This interest will continue to accumulate each year until you pay — though the total penalty is capped so that it cannot exceed twice the original amount you owed.
Remember, timely filing not only helps you avoid these penalties but also keeps your business in good standing with the state. Prioritizing this task can save your LLC from unnecessary financial strain.
Licensure and Tax Requirements
In Arkansas, almost all businesses are required to obtain various licenses and permits at the local, state, and federal levels. Below, we’ve broken down three of the most common types your LLC may need:
- Sales Tax Licenses: If your Arkansas business sells physical items, specific digital products, or offers taxable services, you’ll need to obtain a gross receipts tax permit from the Department of Finance and Administration (DFA) in order to pay sales tax.
- Professional Licenses: Different professionals in Arkansas, like landscape architects, barbers, and social workers, must get professional licenses. As an example, barbers need to get licensed by the State Board of Barber Examiners before they can start offering their services.
- Environmental Permits: Businesses in Arkansas that perform activities with potential environmental impacts are required to get specific permits issued by the Arkansas Department of Environmental Quality (ADEQ). This ensures they operate in line with state laws regarding the environment.
Note: For a more comprehensive look at the statewide licenses and permits your LLC may need, refer to the Discover Arkansas website.
Arkansas LLC Taxes FAQs
While most business entities, including LPs, LLPs, LLLPs, LLCs, and corporations, are required to submit a Franchise Tax Report to the Secretary of State every year, only LLCs and corporations are obligated to both submit this report and pay the franchise tax.
For more information on this, see the section on Arkansas state taxes above.
In Arkansas, the need for an LLC to carry a specific license will depend on the industry it works in, the business activities it performs, and its location. Understanding these requirements at local city, county, and state levels is an important part of managing your LLC's financial responsibilities and tax obligations.
To find out more, see our LLC Taxes article.
You can quickly and easily get an Employer Identification Number (EIN) in Arkansas by applying online using the IRS website or by mailing in a completed Form SS-4. This number will be essential for both tax filing and a number of other business purposes.
Opening an LLC in Arkansas involves an initial payment of $45 ($50 if filing a paper form) in order to submit your Articles of Organization with the state. After this, you’ll need to submit your annual Franchise Tax Report and pay the $150 tax every year.
See our Arkansas LLC formation article for more information.