006.05.06 Ark. Code R. 005-GR-53

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

Rule 006.05.06-005-GR-53 - EXEMPTIONS FROM TAX - SALES FOR RESALE

A. The gross receipts or gross proceeds derived from sales for resale to persons regularly engaged in the business of reselling the articles or services purchased are exempt from tax provided that such sales are made to persons to whom a permit has been issued as provided in Ark. Code Ann. § 26-52-201 et seq. and GR-72. A seller may accept a valid retail permit, or resale permit, issued by another state. Sellers should refer to GR-79 for the general provisions concerning exemption claims and liability.

B. PROOF OF ENTITLEMENT TO EXEMPTION.

1. The sale for resale exemption may be claimed through the use of the exemption certificate (Form ST 391) or the multistate certificate of exemption (SSTGB Form F0003).

2. A purchaser may also claim the sale-for-resale exemption by providing information to the seller that otherwise establishes that the purchaser is reselling the articles purchased. Such information includes the purchaser's retail permit number or a written certification to the seller that the articles or services are purchased for resale.

3. Any person repeatedly selling the same type of property to the same purchaser for resale may accept a blanket certificate covering more than one (1) transaction. A blanket certificate may not be used if a period of more than twelve (12) months elapses between transactions.

4. If a retail permit holder purchases goods, services, wares, and merchandise from a seller on a regular basis, then the retail permit holder must notify the seller of all purchases which are not for resale and remit the applicable amount of tax thereon. If the retail permit holder fails to so notify the seller of purchases not intended for resale, then sufficient grounds shall exist for the Commissioner to cancel the retail permit of the retail permit holder who failed to so notify the seller.

5. A seller has ninety (90) days from the date of sale to obtain a fully completed exemption certificate or information that is the equivalent of the information required by the exemption certificate. If a seller has not obtained an exemption certificate or equivalent information and the Department makes a request for substantiation of the exemption, the seller has one-hundred twenty (120) days from the date of the request to prove by other means that the transaction was not subject to sales or use tax or to obtain in good faith a fully completed exemption certificate from the purchaser. (See GR-79.)

C. SALE FOR RESALE - MANUFACTURERS.

1. Goods, services, wares, merchandise, and property sold for use in manufacturing, compounding, processing, assembling, or preparing for sale, can be classified as having been sold for resale purposes only in the event such goods, services, wares, merchandise, or property becomes a recognizable integral part of the manufactured, compounded, processed, assembled, or prepared products. Sales of goods, services, wares, merchandise, and property not conforming to this requirement are classified as being for consumption or use of the purchaser thereof and are taxable. For purposes of this subsection, the following definitions shall apply:

a. "Recognizable" means capable of being recognized in the finished product. The capability to recognize the effect of goods, wares, merchandise, or property upon the finished product is insufficient to establish that the goods, wares, merchandise or property has been resold.

b. "Integral" means essential to the completeness of the finished product.

2. Services shall be considered a recognizable and integral part of the finished product if:

a. The services were actually performed on the items or articles being sold; and

b. The services enhance the value of the items being sold.

3. Other services performed for businesses engaged in manufacturing, compounding, processing, assembling, or preparing items for sale shall not be entitled to the sale for resale exemption.

4. Manufacturers, compounders, processors, assemblers, and preparers of goods for sale must also satisfy the requirements found in GR-53(A)-(C).

5. Packaging Materials.

a. Generally, the sale of materials used by the manufacturer or processor to package the finished product for sale or delivery is exempt if the materials become part of the finished product. Shrink wrap and strapping which bind the finished product together for shipment to the consumer are exempt. Non-returnable pallets which are delivered with the final product are also exempt. Returnable pallets are taxable.

b. Materials purchased by the manufacturer or processor to transport the product to the customer and which are owned by and returned to the manufacturer or which do not become part of the finished product received by the consumer are taxable. Dunnage bags which prevent containers of products from shifting during transit are taxable.

D. SALE FOR RESALE - RESTAURANT SUPPLIES.

1. As a general rule, gross receipts derived from the sale of the following items to restaurants are exempt as sales for resale:

a. Paper, plastic, and styrofoam cups used for dispensing beverages and the paper and plastic lids for such cups; and

b. Paper and plastic bowls, paper boats, boxes, and containers used for dispensing food items, and the wrappers for such bowls, boats, boxes, and containers.

2. Gross receipts derived from the sale of the following items purchased by restaurants are not exempt as a sale for resale: paper plates; paper and plastic straws and stirrers; plastic tableware and utensils; paper napkins; paper sacks; and premoistened towelettes. However, restaurants or other food sellers that use paper plates or other containers for dispensing the food items sold may purchase the plates or containers exempt as a sale for resale.

3. Gross receipts derived from the sale of toys which are included as a component part of a children's meal are exempt as sales for resale when those toys are purchased by the restaurant.

E. SALE FOR RESALE - LEASES AND RENTALS. Businesses engaged in the business of leasing or renting tangible personal property may purchase repair parts exempt from sales tax if the leased property was originally purchased exempt as a sale for resale. However, this exemption does not apply to service charges for repairs or maintenance work on the property.

F. SALE FOR RESALE - CAR DEALERS. New and used car dealers shall be entitled to purchase services performed on dealer-owned vehicles exempt as a sale for resale if the dealer is purchasing the services solely and exclusively to prepare the vehicle for sale and the service enhances the value of the vehicle. For example, the repairing of windshields, dents, scratches, radiators, engines, and car detailing would be exempt as a sale for resale if the service enhances the value of the vehicle. The sale-for-resale exemption is available only for services performed on the vehicle held for resale. All other services performed for the dealership will remain taxable.

G. Tangible Personal Property Provided in Connection with Taxable Services. See the rule regarding the taxable services. Generally, the service rules begin at GR-9 and continue consecutively thereafter.

H. SALE FOR RESALE - DROP SHIPMENTS. In the case of drop shipment sales, a third-party vendor (e.g. drop shipper) may claim a resale exemption based on an exemption certificate provided by its customer (e.g. the re-seller) or any other acceptable information available to the third-party vendor evidencing qualification for a resale exemption regardless of whether its customer (e.g. the re-seller) is registered with the Department to collect and remit sales or use tax.

006.05.06 Ark. Code R. 005-GR-53

Ark. Code Ann. §§ 26-52-401(12); 26-52-510(c); 26-52-517