006.05.06 Ark. Code R. 005-GR-5

Current through Register Vol. 49, No. 10, October, 2024

Rule 006.05.06-005-GR-5 - TAX IMPOSED UPON SALE AND NOT PROPERTY - INTERSTATE AND INTRASTATE SALES

A. The Arkansas gross receipts tax is a tax imposed on the sale of tangible personal property and not the property itself. Thus, when a sale of tangible personal property occurs in Arkansas, a taxable event has occurred and the tax should be collected and remitted.

B. INTRASTATE (ARKANSAS) SALE.

1. When tangible personal property is sold to a consumer and the seller of the property is engaged in an established business, or sells in an established manner, within Arkansas, and delivery is made within Arkansas transferring either title or possession of the property, the sale is intrastate and subject to the gross receipts tax irrespective of the fact that the seller may not have in stock certain goods, wares, and merchandise for immediate delivery, which requires the seller to order the goods for direct shipment at or from a source outside Arkansas.

2. If an out-of-state consumer orders goods from an Arkansas seller and picks up the tangible personal property in Arkansas in the purchaser's own conveyance, then the sale is intrastate and gross receipts tax must be collected and remitted.

3. Gross receipts tax applies to tangible personal property delivered in Arkansas even though the buyer intends to transport the tangible personal property out of Arkansas.

C. INTERSTATE SALES.

1. Delivery from Arkansas. When tangible personal property is sold by a seller that is engaged in an established business, or sells in an established manner within Arkansas, and the contract of sale or order requires the seller to deliver the property by common carrier, contract carrier, U.S. Postal Service, or in the seller's own conveyance to a point outside Arkansas for consumption or use, the transaction is interstate and not subject to Arkansas gross receipts tax.

2. Delivery into Arkansas. If tangible personal property is purchased for use or consumption in Arkansas from a seller in another state and delivery is made in Arkansas, then such sale is subject to Arkansas compensating use tax. The out-of-state seller may be required to collect Arkansas tax. If the out-of-state seller does not collect Arkansas tax, it becomes the responsibility of the Arkansas customer to remit compensating use tax directly to the Department. The Arkansas customer will be given credit for tax legally paid on the item in another state pursuant to Ark. Code Ann. §§ 26-5-101, 26-53-131. See Ark. Code Ann. § 26-53-101 et seq. and UT-12.

D. DROP SHIPMENTS. A drop shipment is a sales transaction involving three parties - two sellers and one consumer. The first seller sells property to the second seller, who sells to the consumer; however, the first seller delivers the property directly to the consumer. The taxability of drop shipments depends on the location of the second seller and the consumer. The location of the first seller is irrelevant because the sale from the first seller to the second seller is an exempt sale for resale.

Example 1: An out-of-state company, Company A, sells tangible personal property to another out-of-state company, Company B, but drop ships the property directly to Company B's customer located in Arkansas. The sale by Company A to Company B is an out-of-state transaction and is not taxed in Arkansas. The sale of the property is also a sale for resale and would be exempt if it occurred in Arkansas. The sale from Company B to its customer is taxable. Since Company B is making a sale to an Arkansas customer, Company B may be required to collect Arkansas tax. If Company B does not collect Arkansas tax, then the Arkansas customer is responsible for reporting and remitting Arkansas compensating use tax. See Ark. Code Ann. § 26-53-101 et seq. and the Arkansas Compensating Use Tax Rules.

Example 2: An Arkansas retailer, Company A, sells tangible personal property to a company located outside of Arkansas, Company B. Company A ships the tangible personal property directly to Company B's Arkansas customer. If Company B claims the sale-for-resale exemption, then the tax obligation is between Company B and the Arkansas customer. Company B may be required to collect Arkansas tax. If Company B does not collect Arkansas tax, then the Arkansas customer is responsible for reporting and remitting Arkansas compensating use tax. See Ark. Code Ann. § 26-53-101 et seq. and the Arkansas Compensating Use Tax Rules.

E. SERVICES.

1. Services Performed in Arkansas. When taxable services are performed in Arkansas and the customer takes receipt of the service in Arkansas, the transaction is subject to Arkansas gross receipts tax. However, if taxable services are performed in Arkansas, but the customer takes receipt of the service outside of Arkansas, then no Arkansas gross receipts tax is due.

Example: XYZ is a business located in West Memphis, Arkansas that repairs automobile motors. After repairing the motor, XYZ ships the motor by common carrier to Nashville, Tennessee. Since the customer took receipt of the service in Nashville, Tennessee, XYZ will not collect Arkansas tax.

2. Services Performed Outside of Arkansas. If a taxable service is purchased for use or consumption in Arkansas from a seller in another state, then such sale is subject to Arkansas compensating use tax. The out-of-state seller may be required to collect Arkansas tax. If the out-of-state seller does not collect Arkansas tax, then the Arkansas customer is responsible for reporting and remitting Arkansas compensating use tax. The Arkansas customer will be given credit for tax legally paid for the service in another state pursuant to Ark. Code Ann. §§ 26-5-101 and 26-53-131. See Ark. Code Ann. § 26-53-101 et seq. and UT-12.

Example: XYZ ships office equipment out of state for repairs. Following the repair, the office equipment is returned to XYZ in Arkansas. Office equipment repairs are subject to tax in Arkansas. Tax is due on the parts, labor, and delivery charged based on where the repaired item is delivered within Arkansas.

F. ENGAGED IN AN ESTABLISHED BUSINESS. A person is considered to be engaged in an established business within Arkansas if the person either directly, or through a subsidiary, has a store, salesroom, sample room, showroom, distribution center, warehouse, service center, factory, credit and collection office, administrative office, or research facility in Arkansas.

G. DELIVERY. Delivery in Arkansas means that physical possession of the tangible personal property is actually transferred to the buyer within Arkansas, or that the tangible personal property is placed in the mail or given to a common or contract carrier at a point outside this state and directed to the buyer in Arkansas.

006.05.06 Ark. Code R. 005-GR-5

Ark. Code Ann. §§ 26-52-103; 26-52-301; 26-52-302; 26-52-303