ARKANSAS TAX UPDATE - Dover Dixon Horne
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ARKANSAS
TAX UPDATE
S p r ing 2 0 2 1
2021 Arkansas Tax Legislation
Arkansas’s 2021 regular legislative session saw the enactment of more
than 70 tax-related bills, which are summarized below. Highlights from
the session include:
MATTHEW C. BOCH
mboch@ddh.law • Establishment of an independent Tax Appeals Commission (Act 586);
• $265 million of one-time tax relief through exemptions for Paycheck
Protection Program loan forgiveness and other coronavirus aid
(Act 248) and for supplemental unemployment benefits (Act 154); and
• An elective entity-level tax option to help small business owners save
$50 million or more annually by maximizing the federal deductibility of
Arkansas income tax (Act 362).
Unlike in prior years, the legislature has not yet adjourned sine die.
THANE J. LAWHON Instead, under House Concurrent Resolution 1015 (HCR1015), the
tlawhon@ddh.law legislature entered an extended recess, so that it can reconvene in the
fall for redistricting. Under HCR1015, the default effective date will be
July 30, 2021, for acts that do not contain an emergency clause or a
specific effective date. (This assumes that the General Assembly does
not reconvene until the fall.)
After the conclusion of the regular legislative session in fall 2021, a
special session likely follows involving additional tax cuts and relief.
MICHAEL O. PARKER
I. INCOME/FRANCHISE TAXES
mparker@ddh.law Act 154 creates an exemption from income tax for unemployment
compensation benefits paid from federal unemployment funds or under
Title IV of the Social Security Act for calendar years 2020 or 2021.
Act 248 conforms to the federal exemptions for Paycheck Protection
Program loan forgiveness and certain other coronavirus aid as provided
under the federal Consolidated Appropriations Act 2021. In addition,
the Act exempts payments received under the Coronavirus Food
Assistance Program are excluded. Effective for tax years beginning on
or after January 1, 2019. The estimated savings to Arkansas taxpayers
MICHAEL M. POLLOCK is $212 million.
mpollock@ddh.law
Act 283 allows the withholding of state income tax Act 971 increases the income tax deduction amount
from unemployment compensation and unemployment for a teacher’s classroom expense to $500 for
insurance benefits. Withholding under this Act shall begin individual teachers, and $1,000 for teachers married
on the first of the calendar month following the Secretary filing jointly. Effective for tax years beginning on or after
of the DFA issuance of a proclamation to so withhold. January 1, 2021.
Act 362 establishes the Elective Pass-Through Entity Act 1019 clarifies the allocation of remote worker
Tax Act. This is a SALT cap workaround that allows income. A nonresident’s income is taxable only on the
pass-through entities to pay tax at the entity level, income allocable to work performed when physically
where the federal SALT cap does not apply, instead of present within Arkansas. This reverses the administrative
having the income flow through for state purposes to adoption of remote worker taxation (a convenience of
be taxed at the individual owner level. The election is the employer rule) by the Department of Finance and
available for tax years beginning on or after January 1, Administration. Wage withholding requirements are
2022. It is projected to save Arkansas businesses $50 updated accordingly, as is the resident credit for taxes
million or more in federal taxes. paid to other states. Effective for tax years beginning
Act 592 requires casinos to file a report of gambling on or after January 1, 2021 (except for the wage
winnings paid to an individual with DFA and requires withholding effective May 1, 2021).
casinos subject to federal withholding to also withhold Act 1041 establishes the Uniform Limited Liability
Arkansas taxes. Company Act and repeals the Small Business Entity
Act 629 establishes the deadline for state return filing Tax Pass-Through Act. It provides that a limited liability
following application for a federal extension as one company must have the same state tax classification
month after the extended federal deadline. as federal tax classification (except if it elects to be
subject to the elective pass-through entity tax).
Act 635 extends the 2021 Arkansas individual income
tax filing and payment deadline from April 15 to May
17, in further response to COVID-19’s impact on the II. SALES, USE, AND
state and to correspond with the extension of the OTHER TRANSACTION TAXES
federal individual income tax filing deadline (except for Act 142 expands the fly-away exemption to all aircraft
C corporations). by removing the certified maximum take-off weight
Act 765 establishes the Law Enforcement Family that must be present for the sale of an aircraft to be
Relief Check-Off Program and the Law Enforcement exempt. Likely effective October 1, 2021.
Family Relief Trust Fund. Creates a check-off on Act 144 is a technical corrections bill that removes
income tax forms for donations to the program and extraneous references to digital magazines in the
the trust fund. Effective for tax years beginning on or sales tax laws and clarifies the exemption of a car
after January 1, 2022. wash operator’s sale of a car wash. Likely effective
Act 882 makes various tax changes relating to October 1, 2021.
Achieving a Better Life Experience (ABLE) accounts. Act 146 repeals the long-term rental vehicle tax.
These include specifying that only the earnings portion
Act 277 expands the period for a motor vehicle trade-
of a nonqualified distribution from an ABLE account
in credit from 45 days to 60 days following the sale of
is taxable and providing a four-year carryforward
the used vehicle.
for contribution deductions exceeding the $5,000
maximum. Effective for tax years beginning on or after Act 776 requires DFA to submit to counties and
January 1, 2021. municipalities reports on rebates and credits
Act 966 changes the name of the 529 account awarded with respect to the local sales and use
program from the Arkansas Tax-Deferred Tuition tax cap as well as certain construction contracts.
Savings Program Act to the Arkansas Brighter Future This will be the first time that local governments get
Fund Plan Act and makes various drafting changes. this information with taxpayer names and amounts.
Act 966 also slightly adjusts the rules for deductions Effective January 1, 2022.
for contributions and rollovers to 529 accounts for tax Act 807 expands the charitable organizations sales
years beginning on or after January 1, 2021. exemption to up to ten events per year.
2 A R K A N S A S TA X U PDATE
Act 873 creates a new exemption for sales by public III. PROPERTY TAXES
school (including charter school) parent-teacher
Act 267 increases the maximum rate for certain levee
organizations (PTO). It also exempts public school
or drainage improvement districts from 25 cents an
fundraising events from the special event rules for
acre to $2.50 an acre on rural lands.
registration and vendor tax collection. Likely effective
October 1, 2021. Act 278 updates various property tax laws to clearly
provide for the validity and sufficiency of electronic
Act 880 expands the manufacturing exemption to
assessment records.
include equipment used in custom printing. It also
expands the resale exemption to include materials that Act 307 allows county collectors to open up tax books
become part of the printed product. Likely effective in preparation of tax payment before the first business
October 1, 2021. day of March if the books have been delivered and
the property (both real and personal) taxes have been
Act 914 expands the exemption for public school
purchases of instructional materials to include certified to be collected.
equipment that is required to make use of the Act 437 makes the first 4.5 mills of oil and gas assessments
instructional materials. This is intended to exempt part of general revenues through July 1, 2023.
purchases of computers and other electronics. Act 447 makes various technical changes to the
Effective July 1, 2021. process for selling tax-delinquent parcels, including
Act 915 extends the reduced tax rates applicable to allowing online auctions.
electricity and natural gas used in manufacturing to also Act 452 amends governing law for collection procedures
include coal used in manufacturing (but not coal used in for local tax and repeals obsolete laws in connection with
electrical generation). Likely effective October 1, 2021. the collection of local tax.
Act 944 includes electronic devices in the school Act 584 amends the rules governing management and
supplies sales tax holiday. Effective July 1, 2021, and sale of tax delinquent lands by the Commissioner of
thus first applicable to the August 2021 sales tax State Lands.
holiday. Electronic devices include computers, tablets,
and mobile phones. Act 642 allows a city to levy volunteer fire department
fees when there is a petition of a majority of voters from
Act 970 exempts water used in poultry farming from the preceding general election, in lieu of a special election.
Arkansas sales tax. The Act requires the metering for
water used in poultry farming to be separately stated Act 668 provides special guidelines concerning the
from water used for other purposes. Likely effective assessment of property tax on mineral rights.
October 1, 2021. Act 719 authorizes waiver of certain ad valorem taxes
Act 972 allows vendors at special events to potentially and related penalties levied by the Arkansas Public
claim the isolated sale exemption. Likely effective Service Commission on utilities and carriers and creates
October 1, 2021. a statute of limitations on the collection of such ad
valorem taxes on utilities and carriers ten (10) years from
Act 1013 provides sales tax relief on used motor the date of certification.
vehicles, trailers, and semi-trailers with a sales price
exceeding $4,000 but less than $10,000, providing Act 823 requires the Assessment Coordination Division
that they will be taxed at a special low rate of 3.5%. to submit an annual property tax report to the Governor
Effective January 1, 2022. and Legislative Council. Any new assessment guidelines
are required to be included for review.
Act 1059 expands the local sales and use tax information
provided to local governments by allowing a report based Act 1065 reduces the local government’s deducted
on 4-digit NAICS codes showing tax revenues as well as fee for using state income tax refund set off to collect a
the number of permit holders. Effective January 1, 2022. property tax debt from 10% to 5%.
Act 1109 establishes an exemption from sales and use
tax bullion, coin, or currency sold for its intrinsic value, IV. MISCELLANEOUS TAXES
excluding such items that have been incorporated into Act 153 allows the Director of the Department of
jewelry. Likely effective October 1, 2021. Workforce Services to non-charge unemployment
D OV E R D I XO N H O R N E .CO M 3
benefits, so that they do not affect employers’ for wood energy products in an amount equal to 30%
individual accounts if the benefits result from a of wood energy product equipment cost incurred by a
declared disaster. Effective for benefits claimed starting business that has dedicated at least $50,000,000 to a
the week ending April 2, 2020. wood energy project.
Act 263 provides for suspension of the surcharge Act 628 enhances the utilization of public roads
upon petition if there is a sufficient surplus in the improvements tax credits by allowing offset of 100%
Telecommunications Equipment Fund. of income tax instead of 50% and by extending the
Act 271 amends the Direct Shipment of Vinous Liquor carryforward from three to ten years. Effective for tax
Act to tax mead in the same way as wine. years on or after January 1, 2020.
Act 368 caps the taxable wage base for the Workforce Act 797 adds an additional credit of 10% for
Services Law 2022 at $10,000. the payrolls of below-the-line resident or veteran
employees, targeted expenditures, and the Arkansas
Act 369 caps the stabilization tax under Workforce
uplift promotion under the Digital Product and Motion
Services Law for 2022 as not greater than 0.2%.
Picture Industry Development Act.
Act 386 allows the buyer of an existing tobacco
Act 840 increases the annual income tax credits cap
business to operate under the seller’s tobacco permit
for Arkansas historic rehabilitation from $4,000,000
for no more than 30 days after the date of the sale of
to $8,000,000 beginning in the fiscal year ending Jun
the tobacco business.
30, 2022. The sunset for the tax credit is extended 10
Act 434 extends the date for sunset of the Medical years (to 2037).
Marijuana Special Privilege Tax Act to July 1, 2023.
Act 841 authorizes an income tax credit of up to
Act 523 permanently restores franchise tax $3,500 for law enforcement officers who are retired
administration to the Secretary of State, undoing the and perform volunteer work for the State Police to
transfer of franchise tax administration to DFA under investigate cold cases. 1,000 hours of volunteer work
Act 819 of 2019 that otherwise would have occurred on cold cases are required to qualify for this credit in
May 1, 2021. (An administrative transfer to DFA had full. Effective for tax years on or after January 1, 2022.
occurred earlier in 2021 but had been rescinded
Act 875 amends the Water Resource Conservation
effective March 15.)
and Development Incentives Act by increasing the
Act 929 amends the Arkansas Code regarding maximum amount of credits allowed per project, the
procedural enhancements to mechanisms enforcing maximum amount of credits that may be used in a
the master settlement agreement under the Arkansas given taxable year, and the annual cap on the amount
Tobacco Products Act of 1977. of credits allowed. Effective for tax years on or after
Act 947 exempts direct sellers, as defined in the Internal January 1, 2021.
Revenue Code, from employment laws including the Act 895 extends and expands the qualified steel
Minimum Wage Act, Worker’s Compensation Law, and specialty products manufacturing facility provisions
the Division of Workforce Services Law. in the recycling equipment tax credit. Effective for tax
years beginning on or after January 1, 2021.
V. TAX CREDITS AND INCENTIVES Act 904 creates a school choice tax credit program. It
Act 563 extends the period for completing a water provides a tax credit for contributions made to a sponsor-
conservation project under the Water Resource granting organization under the Philanthropic Investment in
Conservation and Development Incentives Act to five Arkansas Kids Program benefitting low-income students.
years (instead of three years). Effective retroactive for The tax credit is capped at $2,000,000 annually.
all projects for which a certificate was issued on or Act 911 extends the time InvestArk project costs are
after January 1, 2017. eligible for retention tax credits to six (6) years from
Act 594 establishes a new Arkansas Wood Energy the date the financial incentive agreement is approved
Products and Forest Maintenance Income Tax Credit under certain narrow circumstances.
If you want timely Arkansas tax and incentives updates, please subscribe to our Arkansas Tax and Incentives Updates blog, or contact any
of the authors and we will add you to our distribution list. The blog URL is http://www.doverdixonhorne.com/ARTaxandIncentivesUpdate
4 A R K A N S A S TA X U PDATE
Act 935 Paisley’s Law, establishes a tax credit of $500 for a stillborn child. Effective for
tax years beginning on or after January 1, 2021.
Act 967 establishes a tax credit for 50% of a taxpayer’s expenditures made for
railroad maintenance; capped at a $5,000 times total track mileage. The credit can
offset up to 100% of income, it has a five-year carryforward, and it is transferrable.
Effective for tax years beginning on or after January 1, 2021.
VI. PROCEDURE
Act 65 establishes a system of review of administrative rules whereby the Legislative
Council reexamines agency rules and considers which rules to extend or repeal. Act 586
Act 143 requires tax preparers that file their clients’ federal income tax returns establishes
electronically to also file clients’ Arkansas returns electronically. Effective for tax years the Independent
beginning on or after January 1, 2021. Tax Appeals
Act 145 allows DFA to waive the filing fees for certificates of indebtedness issued for Commission.
failure to pay state taxes. It is intended
Act 260 requires a state entity to report incidents compromising data security to the to be a neutral
legislative auditor within five (5) business days of the state entity learning of the incident. panel of
Act 373 amends the definition of “claimant agency” entitled to offset delinquent experienced tax
tax collections against a state income tax refund to include the State Insurance professionals
Department and the Self-Insured Fidelity Bond Program. to hear and
Act 483 makes technical revisions to the provisions of Title 26 of the Arkansas Code resolve taxpayer
concerning taxation. disputes with
Act 586 establishes the Independent Tax Appeals Commission! It is intended to be a
the Department
neutral panel of experienced tax professionals to hear and resolve taxpayer disputes with of Finance and
the Department of Finance and Administration (DFA). The three commissioners will be Administration
appointed by July 1, 2022, and the commission will begin taking cases January 1, 2023. (DFA). The three
Act 593 changes provisions governing tax appeals and hearings to conform language commissioners
to the Independent Tax Appeals Commission Act. will be
Act 718 requires DFA to authorize the offset of a tax refund toward a tax delinquency
appointed by
when there has been a final assessment issued, even if a certificate of indebtedness July 1, 2022, and
has not been issued yet. the commission
Act 732 makes various changes to exceptions to the rules prohibiting disclosure of
will begin
taxpayer information and designates the Secretary of DFA as the official custodian of taking cases
certain taxpayer records. January 1, 2023.
Act 876 gives the Bureau of Legislative Research (BLR) direct access to state tax
records and other revenue information and prohibits disclosure of tax records and
revenue information to anyone unauthorized. This will allow BLR to better advise the
General Assembly about potential impacts of tax legislation.
VII. ABANDONED AND UNCLAIMED PROPERTY
Act 77 amends the law governing the notice and publication requirements for
abandoned property.
Act 86 sets $18 million as the amount of Unclaimed Property Act funds transferred to
general revenues per year; previously it had been funds held more than three years.
D OV E R D I XO N H O R N E .CO M 5About the Authors
Matthew C. Boch is a tax attorney who helps businesses manage
their tax liabilities by resolving their Arkansas and multistate tax
problems and by leveraging economic development incentives. His
clients range from small businesses to Fortune 500 companies,
and engagements range from audits to appellate litigation. Within
Dover Dixon Horne PLLC is Arkansas, Matt is a leading tax advisor and advocate. In addition to his
dedicated to providing quality legal work for specific taxpayers, Matt helps all Arkansas taxpayers through
services in an efficient and his policy work as Tax Counsel for the State Chamber of Commerce.
cost-effective manner. We represent
He is a former chair of the Arkansas Bar Association Section of
many different sizes and types of
Taxation and the Arkansas Tax Advisory Council. Matt also authors
businesses, including manufacturing,
retail and service enterprises.
the Dover Dixon Horne Arkansas Tax and Incentives Update blog and
Our attorneys are listed among Arkansas chapters of Bloomberg and American Bar Association tax
America’s Best Lawyers and Mid- guides. Nationally, Matt serves of the board of the National Association
South Super Lawyers and primarily of State Bar Tax Sections (NASBTS) and the American Bar Association
practice in the areas of Litigation, (ABA) Section of Taxation State and Local Taxes Executive Committee,
Business Transactions, Taxation, and he is a member of the Council on State Taxation (COST), the
Employment & Labor, Estate Institute for Professionals in Taxation (IPT), the Independent SALT
Planning, Family Law, Environmental Alliance (ISA), and the Tax Counsel Network (TCN).
Law, Real Estate, Construction Law,
Insurance Defense, and Workers’
Thane J. Lawhon’s practice also emphasizes taxation, business
Compensation. Dover Dixon Horne
law and regulatory issues. He received his B.S. degree from the
PLLC is a member of Meritas,
the world's largest organization University of Arkansas at Fayetteville, his M.B.A. degree from the
of independent business and University of Arkansas at Little Rock, and his J.D. degree, with
commercial litigation law firms. honors, from the William H. Bowen School of Law. Mr. Lawhon
is a member of the American, Arkansas and Pulaski County Bar
Associations. He is co-author of the Arkansas chapter of the
American Bar Association’s Sales & Use Tax Deskbook, and is a
frequent contributor to articles, updates and materials regarding
state and local tax issues.
Michael O. Parker’s practice emphasizes taxation, business law and
regulatory issues. He received his B.A. degree from Vanderbilt University
and his J.D. degree, with honors, from the University of Arkansas
School of Law at Fayetteville. Organizational activities include service
as special tax counsel and legislative representative on tax issues for
the Arkansas State Chamber of Commerce and Associated Industries
of Arkansas. Mr. Parker is a past chairman of the Section on Taxation
of the Arkansas Bar Association and has served by appointment as a
Special Justice to the Arkansas Supreme Court.
This Arkansas Tax Update is designed to alert
clients and others to recent legal developments Michael M. Pollock advises and represents companies and
in particular areas. Such developments are
discussed in general terms and should not be
individuals in tax and business matters with a particular focus on
acted upon without professional advice. state and local taxes. Pollock is a zealous advocate for individuals
and companies and has a passion for aiding in the business growth
© 2 0 2 1 D OV E R D I XO N H O R N E P L L C
of his hometown of Little Rock, Arkansas, and represents clients
42 5 W. C A P I TO L , S T E . 3 70 0 seeking economic development incentives. As a member and editor
L I T T L E R O C K , A R 72 2 0 1 of two law journals, Mr. Pollock has experience in researching and
5 0 1. 3 75 . 9 151 assessing complex tax issues, and he also represents clients in all
D OV E R D I XO N H O R N E .C O M phases of tax controversies.You can also read
