Domestic corporations and all foreign corporations doing business in Arkansas are subject to tax on net income at the following rates:
First $3,000 - 1%
Next $3,000 - 2%
Next $5,000 - 3%
Next $14,000 - 5%
Next $75,000 - 6%
Over $100,000 - 6.5%
The portion of income that exceeds each category is taxed at the next higher rate. For example, if a business has corporate net income of $125,000, the first $3,000 is taxed at 1%, the next $3,000 is taxed at 2%, and so on. Thus, only the $25,000 in excess of $100,000 is taxed at the maximum rate of 6.5%.
If business income is derived from activity inside and outside the state of Arkansas, it is apportioned for taxation according to the percentage of property and payrolls utilized in the state and sales attributable to Arkansas pursuant to the multi-state compact.
A corporation doing business in Arkansas and sustaining a net operating loss may carry forward the loss to the next succeeding taxable year and annually thereafter for a total period of five years succeeding the year of such loss and deduct it from Arkansas taxable income. Operating steel mills may carry forward the loss for 10 years.
Corporations that are members of an affiliated group that file a federal consolidated corporate income tax return may elect to file an Arkansas consolidated corporate income tax return. However, only those corporations in the federal affiliated group that have gross taxable income from sources within Arkansas are eligible.
Arkansas has adopted the provisions of Subchapter S of the Federal Internal Revenue Code of 1986 (Title 26, U.S.C., Sections 1361 through 1379).
Subject to specific conditions, income tax credits are offered through certain incentives, which are described in the Incentives section of the website.
Domestic - When applied to any corporation or association, including partnership, means created or organized in the state of Arkansas
Foreign - When applied to any corporation or association, including partnership, means created or organized outside the state of Arkansas
Net Income - Income reported on the federal return, with certain additions and deductions prescribed by Arkansas law, such as adjustments for state income tax deductions, adjustments for capital gains and losses and deductions for energy devices purchased for use by the corporation
The following example shows the method of apportioning business income to Arkansas and the calculation of tax due the state for a hypothetical firm with business income of $1,250,000.
Net business income = $1,250,000
Apportionment method based on the double-weighted, three-factor formula
U.S. Ark. Ark.%
Plant, property, & equipment (beginning of year) $3,100,000 $750,000
Plant, property, & equipment (end of year) +$3,300,000 +$850,000
TOTAL $6,400,000 $1,600,000
Average(÷2) $3,200,000 $800,000 25%
Payroll $900,000 $180,000 20%
Sales & receipts $25,000,000 $3,750,000 15%x2 30%
Sum of percentages 75%
Income subject to tax in Arkansas is the total income multiplied by the average of the sum of percentages in Arkansas: ($1,250,000 x 18.75% = $234,375)
Arkansas corporate income tax computations based on $234,375 and Arkansas tax rates: