006.05.06 Ark. Code R. 005-GR-18

Current through Register Vol. 49, No. 9, September, 2024

Rule 006.05.06-005-GR-18 - WHAT CONSTITUTES GROSS RECEIPTS - EXAMPLES

A. DELIVERY CHARGES. Delivery charges are part of the gross receipts or gross proceeds on which the tax must be collected and remitted unless the charges are billed directly to the purchaser by a carrier other than the seller.

1. If the tangible personal property being shipped is exempt from sales and use tax, the delivery charges are also exempt from tax.

2. If a shipment includes tax-exempt property and taxable property, the seller must pay the tax imposed only on the percentage of the delivery charge allocated to the taxable property. To determine the percentage, the seller may use either of the following options:

a. A percentage based on the total sales price of the taxable property compared to the total sales price of all property in the shipment; or

b. A percentage based on the total weight of the taxable property compared to the total weight of all the property in the shipment.

B. USED MERCHANDISE. The gross receipts derived from the sale of used tangible personal property are subject to the tax except as otherwise provided. (See also GR-50, GR-51, GR-13, GR-14, and GR-15.)

1. Taxpayers may deduct the value of any returned merchandise from gross receipts on the monthly report if the full purchase price and tax have been refunded to the customer. Sufficient records must be kept to establish that this requirement has been met.

2. Property which has been repossessed or voluntarily returned without a full refund of the purchase price cannot be classified as returned merchandise and upon its resale, the taxpayer should collect and remit the tax on the gross proceeds derived from the resale. Where the records of any business are kept so as to distinguish sales of repossessed merchandise from other sales then upon the resale of repossessed merchandise, the amount of tax to be remitted is the difference between the amount of tax previously remitted on the original sale and the amount of tax computed on the total price realized from both the original sales and resale of such merchandise.

Example 1: Seller sells merchandise for $10,000 on credit. Purchaser pays $3,000, then defaults on the payment agreement. Seller repossesses merchandise and resells for $8,000. (Assume 5% tax.) Tax on original sale was $500 ($10,000 x 5% = $500). Proceeds received from both original sale and resale = $11,000 ($3,000 + $8,000). Tax computed on total proceeds = $550 ($11,000 x 5%) Difference = $50 ($550 - $500). Tax to be remitted to the Director on resale is $50.

Example 2: Same facts except merchandise resells for $6,000. Now total proceeds = $9,000. Tax computed on total proceeds = $450. Seller entitled to refund of $50 on resale.

C. INSTALLATION CHARGES. If a seller is engaged in the established business of selling and installing tangible personal property in Arkansas, and the sales price of the property includes the installation charges as a part of the total sales price, the gross receipts tax should be collected on the total sales price. If the installation charges are separately stated on the invoice or bill of sale, tax is not due on the separate installation charge, unless the installation is a specifically enumerated taxable service such as the installation services in GR-9 or GR-9.17. Charges for installation services which are taxable under GR-9 or GR-9.17 of these rules are taxable even if they are separately stated.

D. WITHDRAWAL FROM STOCK.

1. Withdrawal of purchased goods. If a seller has a retail permit and purchases goods from its suppliers without paying tax to those suppliers claiming the "sale for resale" exemption and the seller withdraws the merchandise from stock and gives the merchandise to customers or other third parties, or uses the merchandise itself, then the value of this merchandise is a part of the seller's gross receipts or gross proceeds and the seller must remit the tax on the purchase price of the goods paid by the seller.

2. Withdrawal of manufactured or processed goods.

a. A business that manufactures or produces products and sells the products to third parties or at retail may at times transfer title to certain of those products to itself or give the products to another person or entity. The business should report and remit tax on the sales price of the products rather than the value of the raw materials used to manufacture or produce the products.

b. A business that manufactures or produces products and transfers title to certain of those products to itself in a capacity other than as the manufacturer should determine the tax treatment of the transfer as follows. If the business sells the products to third parties, then the business should report and remit tax on the sales price of the product rather than the value of the raw materials. If the business does not sell any product to third parties, the business is acting as a contractor and should report and remit tax on the cost of the raw materials withdrawn to produce the product.

Example 1: A business produces and installs windows. The business also sells windows to third parties without installation. When the business sells windows as a manufacturer to itself as a contractor, the business should remit tax on the sales price of the windows.

Example 2: A business produces and installs windows. The business does not sell any windows to third parties. When the business produces and installs the windows, it is acting only as a contractor and should remit tax on the value of the raw materials used to produce the windows.

3. The value of goods that are withdrawn from stock by sellers and donated to National Guard members, emergency service workers, or volunteers providing services in an area declared a disaster area by the Governor are exempt from tax and are not required to be reported as part of the seller's gross receipts.

4. Restaurants and other food sellers that allow employees to consume food free of charge must treat the food as a withdrawal from stock, unless all of the following apply:

a. The food is surplus that would otherwise be discarded;

b. The restaurant does not prepare food in excess of that expected to be consumed to create the surplus food; and

c. The food is provided to the employees on an irregular and incidental basis, i.e. when such surplus exists.

5. Tax is due at the time the item is withdrawn from stock. The applicable local tax for a withdrawal from stock is determined by the location at which the item is withdrawn.

E. WARRANTY SALES - AUTOMOBILES. (See GR-9(E) and GR-12.)

F. WARRANTY SALES - APPLIANCES. If a seller is engaged in the business of selling and installing refrigerators or other appliances to consumers, and the manufacturer of the appliance offers purchasers an extended warranty for a consideration which may be purchased at the time the appliance is purchased or at a later date, the seller must collect sales tax on the price of the warranty whenever it is sold. (See GR-9(E).)

G. MEMBERSHIP FEES. A bookstore which sells books from an established business in Arkansas has also organized a book club. In order to become a member of the club, the bookstore's customers pay a yearly membership fee. In return for this fee, the club members may purchase books for ten percent (10%) off the listed store price. Neither the membership fee nor the value of the discount should be considered gross receipts or gross proceeds. See GR-11 regarding taxable membership fees.

H. COUPONS AND BUYDOWNS.

1. Manufacturer's Coupons. All amounts received by a retailer from a manufacturer or other third party as reimbursement for a coupon issued by the manufacturer or third party are part of the gross receipts or gross proceeds for the sale of the product and are taxable.

Example: A manufacturer or other third party issues a coupon entitling customers to 25 cents off the retail price of a product. The manufacturer will reimburse retailers who honor the coupons. The 25 cents received by the retailer from the manufacturer is part of gross receipts or gross proceeds. The retailer must collect and remit the tax on the total amount received from the customer and the manufacturer.

2. Retailer Coupons. The amount of any coupon that is issued by the retailer and is not reimbursed by any third party is not part of the gross receipts or gross proceeds received in connection with the sale of the product and is not taxable. Example: Retailer issues a coupon entitling customers to 25 cents off the price of a product. Retailer will not be reimbursed by any third party. The 25 cents is not part of gross receipts or gross proceeds and the tax is due only on the amount paid by the customer for the product not including the coupon.

3. Manufacturer's Buydowns. A "buydown" is a cash payment made to a retailer by a manufacturer as an incentive to the retailer to reduce the retail price of the manufacturer's products for the purpose of increasing sales of such products. A buydown is a transaction between the manufacturer and the retailer, to which the consumer is not a party. For products on which a buydown has been paid, the buydown is not considered a part of the gross proceeds or gross receipts paid by consumers.

I. VEHICLE MANUFACTURER OR DEALER REBATES. Vehicle manufacturer or dealer rebates are part of the consideration received for the motor vehicle and are considered part of the gross proceeds or gross receipts.

J. BAD DEBTS.

1. A taxpayer may deduct bad debts from the total amount upon which the tax is calculated. For purposes of the bad debt deduction, the taxpayer is the person required by law to remit to the Director the tax attributable to the transaction for which the bad debt deduction is claimed. Unless otherwise provided by statute, the person required by law to remit sales tax is the seller.

2. A bad debt may be deducted on the sales and use tax return of a taxpayer for the tax period during which the bad debt is written off as uncollectible in the taxpayer's books and records, and the taxpayer is eligible to deduct the bad debt for federal income tax purposes.

3. A taxpayer may claim a bad debt deduction on its sales and use tax return if the taxpayer is not required to file a federal income tax return or if the taxpayer utilizes the cash method of accounting for income tax. However, a taxpayer may not claim a bad debt deduction on its sales and use tax return if the taxpayer has received permission to report and remit sales tax on a cash basis instead of an accrual basis pursuant to Ark. Code Ann. § 26-52-502 and GR-78.

4. A taxpayer cannot claim a bad debt deduction on its sales and use tax return before the taxpayer has reported and remitted the tax for the debt at issue to the state.

5. Debts that are secured by tangible personal property that has been repossessed upon default do not qualify for the bad debt deduction.

6. If the amount of bad debt exceeds the amount of taxable sales for the tax period during which the bad debt is written off, the taxpayer may file a claim for a refund. A bad debt must be deducted, or claim for refund filed, within three (3) years from the due date of the sales and use tax return on which the bad debt could first be claimed.

7. If a deduction is taken for a bad debt and the taxpayer subsequently collects the debt in whole or in part, the tax on the amount so collected shall be paid and reported on the next return date after the collection. For the purposes of reporting a payment received on a previously claimed bad debt, any payment made on a debt or account is applied first proportionally to the taxable price of the tangible personal property or service and the sales tax on the tangible personal property or service and second to interest, service charges, and any other charges.

8. Any deduction taken or refund paid, which is attributed to bad debts, shall not include interest.

9. Except as provided in Ark. Code Ann. § 26-52-309(f), concerning certified service providers, the only party entitled to a bad debt deduction or refund pursuant to this section is the taxpayer that originally reported and remitted the tax in question.

K. None of the above examples should be construed to limit the definition of "gross receipts," "gross proceeds," or "sales price".

006.05.06 Ark. Code R. 005-GR-18

Ark. Code Ann. §§ 26-52-103(6); 26-52-103(13); 26-52-301; 26-52-301(3); 26-52-301(6); 26-52-301(7); 26-52-309; 2652-401(38); 26-52-517