Although some know Arkansas as the headquarters of billion-dollar companies like Walmart, the state is also home to 264,245 small businesses—and it’s easy to see why.
Entrepreneur.com ranked the Natural State as the second most affordable state to live in, which means you’ll be able to stretch your budget further than if you lived in almost any other state.
If you plan on starting your own venture—or if you have one already—you’ll also need to know what taxes your Arkansas small business is responsible for paying, withholding, and reporting. But don’t worry, we’ve got you covered—keep reading!
What kind of business taxes do you have to pay in Arkansas?
As a business owner, there are a number of factors that impact your tax liabilities, such as the type of business entity you have, your employer status, and your revenue. Generally speaking, many Arkansas small businesses can expect to pay income tax, franchise tax, sales tax, withholding tax, unemployment tax, and local taxes for the jurisdiction in which they’re located.
Arkansas individual income tax
Pass-through entities like sole proprietorships, partnerships, and limited liability companies (LLCs) don’t incur business taxes per se. Rather, the owner(s) pay taxes through their personal income tax returns.
Individual income tax rates in Arkansas range from 2% to 4.9%.
How to pay
Arkansas individual income tax returns are due by the 15th day of the fourth month after the end of your fiscal year. For calendar year filers, the deadline is April 15.
Taxpayers can file their returns and make payments online through the Arkansas Taxpayer Access Point (ATAP) system. Alternatively, if you choose to file by mail, submit your return along with payment voucher Form AR1000V and a check or money order to the appropriate address.
For more information on how to file Arkansas income taxes, including which address to mail returns to, visit this FAQ page from the Arkansas Department of Finance and Administration (DFA).
Arkansas pass-through entity tax election
The state of Arkansas allows partnerships, S corporations, and LLCs to take a pass-through entity tax (PET) election, which allows these entities file one tax return on behalf of the business if more than 50% of the organization’s voting members elect to do so.
Taking the election allows all members of the business to pay the same tax rate—which, in this case, is the highest income tax rate for individuals at 4.9%—and reduces their tax liability at the federal level.
Keep in mind that this election is not available for sole proprietorships, C corporations, and LLCs that are taxed as C corporations.
How to pay
To make the election, businesses must file Form AR362 or a PET tax return (AR1100PET) by the 15th day of the fourth month after the end of the tax year. Arkansas also requires businesses that take the PET election and expect to owe over $1,000 in income taxes to make quarterly estimated tax payments through ATAP. These payments must be submitted by:
- The 15th day of the fourth month of the fiscal year
- The 15th day of the sixth month of the fiscal year
- The 15th day of the ninth month of the fiscal year
- The 15th day of the first month of the following fiscal year
To file returns by mail, send in your payment along with payment voucher Form AR1100ESPET to the address below:
Department of Finance and Administration
Pass-through Entity Tax
P.O. Box 919
Little Rock, AR 72203-919
To find out whether making the PET election is the best decision for your business, talk to your accountant or tax advisor. Answers to frequently asked questions regarding the PET election can be found here.
Arkansas corporate income tax
Corporations and LLCs with a C corporation election are required to pay corporate income taxes to the DFA. Arkansas corporate income tax rates for 2023 range from 1% to 5.3%.
How to pay
Before you can file and pay your corporate taxes, you’ll first need to register your business on ATAP.
Arkansas corporations must file business tax returns (Form AR1100CT) and make tax payments by the 15th day of the fourth month after the end of the fiscal year. For companies that follow the calendar year, their due date is April 15.
The state of Arkansas also requires corporations to make estimated tax payments by the 15th day of the fourth, sixth, ninth, and twelfth month of the fiscal year. If you expect your income tax liability to be over $20,000 for the year, you must submit your estimated payments via electronic funds transfer (EFT).
For answers to commonly asked questions about the Arkansas corporate income tax, read this PDF from the DFA.
Arkansas imposes a franchise tax on corporations and LLCs for the privilege of doing business in the state. The amount your business pays in annual franchise taxes depends on how it’s structured. Here’s what business owners can expect to pay for each business type:
- LLCs: $150
- Corporations with stock: $150 minimum
- Corporations without stock: $300
How to pay
Arkansas franchise tax reports and tax payments are due by May 1 to the Arkansas Secretary of State. Filing online is recommended, but if you decide to submit your return by mail, here is the address:
1401 W. Capitol Avenue, Suite 250
Little Rock, AR 72201
For more information on the Arkansas franchise tax, including which tax form to use, visit the Secretary of State website.
Arkansas sales tax
Businesses that sell physical goods and certain kinds of services may subject to state sales tax in Arkansas. This tax is collected at the point of purchase and paid to the Department of Finance and Administration. In 2023, the Arkansas sales and use tax rate is 6.5%. Some items are taxed at lower rates than others. See the Department of Finance and Administration website for details that may apply to your business.
How to pay
To collect Arkansas sales tax, businesses must first get a sales tax permit from the Department of Finance and Administration. For information on how to register your business, visit the DFA website.
Businesses that file sales tax returns must do so through ATAP on a monthly, quarterly, or annual basis. The DFA will assign you a filing frequency based on the size or sales volume of your company. But no matter how often you must file taxes, you can expect them to be due by the 20th day of the month after the tax period ends.
For details on how to fill out your sales tax return form, read these instructions.
Arkansas employers must withhold taxes from each employee’s wages and submit them to the Department of Finance and Administration.
How to pay
To pay withholding tax, first register for an Arkansas withholding tax account with the DFA.
Most employers—including new ones—file withholding tax reports and make tax payments on a monthly basis, with reports and payments for each month due by the 15th day of the following month. Businesses that collect $20,000 or more in withholding taxes each month must submit payment electronically through ATAP, but all employers can use this payment method even if they don’t meet the tax threshold.
Companies with a tax liability of less than $1,000 in a single tax period file and pay their taxes on an annual basis. For these businesses, their tax report is due by January 31.
Additionally, Arkansas employers must file another two withholding tax forms each year:
- Form ARW-3 must be filed by January 31 each year. Submit the tax form, along with a copy of Internal Revenue Service (IRS) Form 1096 and your state copies of Forms W-2 and 1099, to the following address:
P.O. Box 8055
Little Rock, AR 72203-8055
- File Form AR3MAR online via ATAP by February 28.
For more details, review the Arkansas DFA withholding tax instructions for employers.
Employers are responsible for collecting unemployment insurance tax. The Arkansas unemployment tax rate in 2023 ranges from 0.1% to 14%, while the new employer rate is 3.1% for the first $7,000 of each employee’s wages.
How to pay
To file and pay unemployment taxes, you’ll need to have a Division of Workforce Services (DWS) employer account number and an Arkansas state unemployment account. New businesses can register with the DWS through the Tax21 online portal.
You’ll use the same portal to file quarterly unemployment taxes, which are due on April 30, July 31, October 31, and January 31.
To learn more about Arkansas unemployment taxes, review the Arkansas Employer Handbook.
Arkansas has over 300 local taxes, so you may be subject to additional taxes imposed by the municipality your business is located in. For context, the state has a maximum local sales tax rate of 6.125% and an average combined state and local tax rate of 9.46%.
In addition to the sales tax, certain businesses may be required to pay an additional tax on alcohol, cigarettes, and other goods and services.
To find out which specific taxes your business is responsible for, ask your accountant or tax advisor.
Arkansas business tax breakdown by business type
For a breakdown of federal and Arkansas state taxes by business entity type, check out the chart below. Keep in mind that business owners of pass-through entities pay federal income taxes through their personal tax returns.
|Business type||State income taxes||Franchise tax||Sales tax||Withholding tax||Unemployment tax||Federal taxes|
|C corporation||Yes||Yes||Yes, if applicable||Yes, if you hire employees||Yes, if you hire employees||Yes|
|S corporation||Yes||Yes||Yes, if applicable||Yes, if you hire employees||Yes, if you hire employees||Yes (pass-through)|
|LLC with C corp election||Yes||Yes||Yes, if applicable||Yes, if you hire employees||Yes, if you hire employees||Yes|
|LLC||Yes||Yes||Yes, if applicable||Yes, if you hire employees||Yes, if you hire employees||Yes (pass-through)|
|Partnership||Yes||No||Yes, if applicable||Yes, if you hire employees||Yes, if you hire employees||Yes (pass-through)|
|Sole proprietorship||Yes||No||Yes, if applicable||Yes, if you hire employees||Yes, if you hire employees||Yes, by way of individual income tax|
File your Arkansas small business taxes with Gusto
Filing federal, state, and local taxes is an important responsibility for all business owners, but it takes time and effort to get it right. With Gusto, you can relax knowing that your payroll software keeps all your tax information and deadlines organized. Get started by signing up for a Gusto account today.