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1 State of Arkansas A Bill
2 95th General Assembly
3 Regular Session, 2025 SENATE BILL 567
4
5 By: Senator Crowell
6 By: Representative R. Burkes
7
8 For An Act To Be Entitled
9 AN ACT TO AMEND THE MULTISTATE TAX COMPACT AND THE
10 UNIFORM DIVISION OF INCOME FOR TAX PURPOSES ACT; TO
11 AMEND AND MODERNIZE THE LAW CONCERNING THE
12 APPORTIONMENT OF INCOME DERIVED FROM MULTISTATE
13 OPERATIONS; TO CHANGE THE METHOD FOR SOURCING OF
14 RECEIPTS FOR SERVICES AND INTANGIBLES FROM COST OF
15 PERFORMANCE TO MARKET-BASED SOURCING; AND FOR OTHER
16 PURPOSES.
17
18
19 Subtitle
20 TO AMEND AND MODERNIZE THE LAW
21 CONCERNING THE APPORTIONMENT OF INCOME
22 DERIVED FROM MULTISTATE OPERATIONS; AND
23 TO CHANGE THE METHOD FOR SOURCING OF
24 RECEIPTS FOR SERVICES AND INTANGIBLES.
25
26 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF ARKANSAS:
27
28 SECTION 1. Arkansas Code � 26-5-101, Article IV, concerning the
29 division of income under the Multistate Tax Compact, is amended to read as
30 follows:
31 ARTICLE IV
32 Division of Income
33
34 1. As used in this Article, unless the context otherwise
35 requires:
36 (a) "Business income" means income arising from
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1 transactions and activity in the regular course of the taxpayer's trade or
2 business and includes income from tangible and intangible property if the
3 acquisition, management, and disposition of the property constitute integral
4 parts of the taxpayer's regular trade or business operation "Apportionable
5 income" means:
6 (1) All income that is apportionable under the
7 United States Constitution and is not allocated under the laws of this state,
8 including:
9 (A) Income arising from transactions and
10 activity in the regular course of the taxpayer's trade or business; and
11 (B) Income arising from tangible and
12 intangible property if the acquisition, management, employment, development,
13 or disposition of the property is or was related to the operation of the
14 taxpayer's trade or business; and
15 (2) Any income that would be allocable to this
16 state under the United States Constitution, but that is apportioned rather
17 than allocated pursuant to the laws of this state;
18 (b) "Commercial domicile" means the principal place
19 from which the trade or business of the taxpayer is directed or managed;
20 (c) "Compensation" means wages, salaries,
21 commissions, and any other form of remuneration paid to employees for
22 personal services;
23 (d) [Repealed.]
24 (e) "Nonbusiness Nonapportionable income" means all
25 income other than business apportionable income;
26 (f) "Public utility" means any business entity (1)
27 which owns or operates any plant, equipment, property, franchise, or license
28 for the transmission of communications, transportation of goods or persons,
29 except by pipeline, or the production, transmission, sale, delivery, or
30 furnishing of electricity, water, or steam; and (2) whose rates of charges
31 for goods or services have been established or approved by a federal, state,
32 or local government or governmental agency;
33 (g) "Sales" "Receipts" means all gross receipts of
34 the taxpayer not allocated under paragraphs 4 through 8 of this article and
35 that are received from transactions and activity in the regular course of the
36 taxpayer's trade or business; except that receipts of a taxpayer from hedging
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1 transactions and from the maturity, redemption, sale, exchange, loan or other
2 disposition of cash or securities shall be excluded;
3 (h) "State" means any state of the United States,
4 the District of Columbia, the Commonwealth of Puerto Rico, any territory or
5 possession of the United States, and any foreign country or political
6 subdivision thereof;
7 (i) "This state" means the state in which the
8 relevant tax return is filed or, in the case of application of this article
9 to the apportionment and allocation of income for local tax purposes, the
10 subdivision or local taxing district in which the relevant tax return is
11 filed State of Arkansas.
12 2. Any taxpayer having income from business activity
13 which is taxable both within and without this state, other than activity as a
14 railroad or public utility or the rendering of purely personal services by an
15 individual, shall allocate and apportion his net income as provided in this
16 article. If a taxpayer has income from business activity as a public utility
17 but derives the greater percentage of his income from activities subject to
18 this article, the taxpayer may elect to allocate and apportion his entire net
19 income as provided in this article.
20 3. For purposes of allocation and apportionment of income
21 under this article, a taxpayer is taxable in another state if (1) in that
22 state he the taxpayer is subject to a net income tax, a franchise tax
23 measured by net income, a franchise tax for the privilege of doing business,
24 or a corporate stock tax, or (2) that state has jurisdiction to subject the
25 taxpayer to a net income tax regardless of whether, in fact, the state does
26 or does not or any other tax measured by income or other measure of business
27 activity in the state and the taxpayer files the requisite tax return in the
28 other state, or (2) the state has no net income tax, franchise tax measured
29 by net income, or any other tax measured by income or other measure of
30 business activity in the state as provided in this section and the taxpayer
31 has activities in the other state that exceed those protected by 15 U.S.C. ��
32 381 -- 384.
33 4. Rents and royalties from real or tangible personal
34 property, capital gains, interest, dividends, or patent or copyright
35 royalties, to the extent that they constitute nonbusiness nonapportionable
36 income, shall be allocated as provided in paragraphs 5 through 8 of this
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1 article.
2 5.(a) Net rents and royalties from real property located
3 in this state are allocable to this state.
4 (b) Net rents and royalties from tangible personal
5 property are allocable to this state: (1) if and to the extent that the
6 property is utilized in this state, or (2) in their entirety if the
7 taxpayer's commercial domicile is in this state and the taxpayer is not
8 organized under the laws of or taxable in the state in which the property is
9 utilized.
10 (c) The extent of utilization of tangible personal
11 property in a state is determined by multiplying the rents and royalties by a
12 fraction, the numerator of which is the number of days of physical location
13 of the property in the state during the rental or royalty period in the
14 taxable year and the denominator of which is the number of days of physical
15 location of the property everywhere during all rental or royalty periods in
16 the taxable year. If the physical location of the property during the rental
17 or royalty period is unknown or unascertainable by the taxpayer, tangible
18 personal property is utilized in the state in which the property was located
19 at the time the rental or royalty payer obtained possession.
20 6.(a) Capital gains and losses from sales of real property
21 located in this state are allocable to this state.
22 (b) Capital gains and losses from sales of tangible
23 personal property are allocable to this state if (1) the property had a situs
24 in this state at the time of the sale, or (2) the taxpayer's commercial
25 domicile is in this state and the taxpayer is not taxable in the state in
26 which the property had a situs.
27 (c) Capital gains and losses from sales of
28 intangible personal property are allocable to this state if the taxpayer's
29 commercial domicile is in this state.
30 7. Interest and dividends are allocable to this state if
31 the taxpayer's commercial domicile is in this state.
32 8.(a) Patent and copyright royalties are allocable to this
33 state: (1) if and to the extent that the patent or copyright is utilized by
34 the payer in this state, or (2) if and to the extent that the patent
35 copyright is utilized by the payer in the state in which the taxpayer is not
36 taxable and the taxpayer's commercial domicile is in this state.
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1 (b) A patent is utilized in a state to the extent
2 that it is employed in production, fabrication, manufacturing, or other
3 processing in the state or to the extent that a patented product is produced
4 in the state. If the basis of receipts from patent royalties does not permit
5 allocation to states or if the accounting procedures do not reflect states of
6 utilization, the patent is utilized in the state in which the taxpayer's
7 commercial domicile is located.
8 (c) A copyright is utilized in a state to the
9 extent that printing or other publication originates in the state. If the
10 basis of receipts from copyright royalties does not permit allocation to
11 states or if the accounting procedures do not reflect states of utilization,
12 the copyright is utilized in the state in which the taxpayer's commercial
13 domicile is located.
14 9. For the tax year beginning January 1, 2021, all
15 business All apportionable income shall be apportioned to this state by
16 multiplying the income by a fraction, the numerator of which is the total
17 sales receipts of the taxpayer in this state during the tax period and the
18 denominator of which is the total sales receipts of the taxpayer everywhere
19 during the tax period.
20 10. [Repealed.]
21 11. [Repealed.]
22 12. [Repealed.]
23 13. [Repealed.]
24 14. [Repealed.]
25 15. [Repealed.]
26 16. Sales Receipts from the sale of tangible personal
27 property are in this state if:
28 (a) The property is delivered or shipped to a
29 purchaser within this state regardless of the f.o.b. point or other
30 conditions of the sale; or
31 (b) The property is shipped from an office, store,
32 warehouse, factory, or other place of storage in this state and the taxpayer
33 is not taxable in the state of the purchaser, in which case the sales
34 receipts shall be sourced as follows:
35 (1) For the tax year beginning on January 1,
36 2024, sales receipts shall be sourced eighty-five and seventy-one hundredths
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1 percent (85.71%) within this state and fourteen and twenty-nine hundredths
2 percent (14.29%) outside this state;
3 (2) For the tax year beginning on January 1,
4 2025, sales receipts shall be sourced seventy-one and forty-two hundredths
5 percent (71.42%) within this state and twenty-eight and fifty-eight
6 hundredths percent (28.58%) outside this state;
7 (3) For the tax year beginning on January 1,
8 2026, sales receipts shall be sourced fifty-seven and thirteen hundredths
9 percent (57.13%) within this state and forty-two and eighty-seven hundredths
10 percent (42.87%) outside this state;
11 (4) For the tax year beginning on January 1,
12 2027, sales receipts shall be sourced forty-two and eighty-four hundredths
13 percent (42.84%) within this state and fifty-seven and sixteen hundredths
14 percent (57.16%) outside this state;
15 (5) For the tax year beginning on January 1,
16 2028, sales receipts shall be sourced twenty-eight and fifty-five hundredths
17 percent (28.55%) within this state and seventy-one and forty-five hundredths
18 percent (71.45%) outside this state;
19 (6) For the tax year beginning on January 1,
20 2029, sales receipts shall be sourced fourteen and twenty-six hundredths
21 percent (14.26%) within this state and eighty-five and seventy-four
22 hundredths percent (85.74%) outside this state; and
23 (7) For tax years beginning on or after
24 January 1, 2030, sales receipts shall be sourced one hundred percent (100%)
25 outside this state.
26 17. Sales, other than sales of tangible personal
27 property, are in this state if:
28 (a) The income-producing activity is performed in
29 this state; or
30 (b) The income-producing activity is performed both
31 in and outside this state and a greater proportion of the income-producing
32 activity is performed in this state than in any other state, based on costs
33 of performance.
34 (a) Receipts, other than receipts described in
35 subsection 16 of this section, are in this state if the taxpayer's market for
36 the sales is in this state. The taxpayer's market for sales is in this state:
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1 (1) In the case of sale, rental, lease, or
2 license of real property, if and to the extent the property is located in
3 this state;
4 (2) In the case of rental, lease, or license
5 of tangible personal property, if and to the extent the property is located
6 in this state;
7 (3) In the case of sale of a service, if and
8 to the extent the service is delivered to a location in this state; and
9 (4) In the case of intangible property:
10 (A) That is rented, leased, or licensed,
11 if and to the extent the property is used in this state, provided that
12 intangible property utilized in marketing a good or service to a consumer is
13 used in this state if that good or service is purchased by a consumer who is
14 in this state; and
15 (B) That is sold, if and to the extent
16 the property is used in this state, provided that:
17 (i) A contract right, government
18 license, or similar intangible property that authorizes the holder to conduct
19 a business activity in a specific geographic area is used in this state if
20 the geographic area includes all or part of this state;
21 (ii) Receipts from intangible
22 property sales that are contingent on the productivity, use, or disposition
23 of the intangible property shall be treated as receipts from the rental,
24 lease, or licensing of such intangible property under subsection
25 17(a)(4)(B)(i) of this article; and
26 (iii) All other receipts from a
27 sale of intangible property shall be excluded from the numerator and
28 denominator of the receipts factor.
29 (b) If the state or states of assignment under
30 subsection 17(a) of this article cannot be determined, the state or states of
31 assignment shall be reasonably approximated.
32 (c) If the taxpayer is not taxable in a state to
33 which a receipt is assigned under subsection 17(a) or subsection 17(b) of
34 this article, or if the state of assignment cannot be determined under
35 subsection 17(a) of this article or reasonably approximated under subsection
36 17(b) of this article, such receipt shall be excluded from the denominator of
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1 the receipts factor.
2 (d) The Secretary of the Department of Finance and
3 Administration may prescribe rules as necessary or appropriate to carry out
4 the purposes of this article.
5 (e)(1) Notwithstanding subsection 17(a) of this
6 article, a person that is principally engaged in the sale of
7 telecommunications service, mobile telecommunications service, internet
8 access service, cable television service, community antenna television
9 service, or direct-to-home satellite television programming service, or a
10 combination of these services, may elect to source sales under this
11 subsection 17(e) for tax years beginning on or after January 1, 2026, but
12 before December 31, 2035.
13 (2) An election under this subsection 17(e)
14 shall be made on the taxpayer's return for the first tax year for which the
15 taxpayer is eligible for the election, and once made, an election under this
16 subsection 17(e) cannot be changed for subsequent years without approval in
17 writing by the secretary.
18 (3) Under this subsection 17(e), sales, other
19 than sales described in subsection 16 of this article, are in this state if:
20 (A) The income-producing activity is
21 performed in this state; or
22 (B) The income-producing activity is
23 performed both in and outside this state and a greater proportion of the
24 income-producing activity is performed in this state than in any other state,
25 based on costs of performance.
26 18.(a) If the allocation and apportionment provisions of
27 this Article do not fairly represent the extent of the taxpayer's business
28 activity in this state, the taxpayer may petition for or the tax
29 administrator secretary may require, in respect to all or any part of the
30 taxpayer's business activity, if reasonable:
31 (a)(1) Separate accounting;
32 (b)(2) The inclusion of one (1) or more
33 additional factors which will fairly represent the taxpayer's business
34 activity in this state; or
35 (c)(3) The employment of any other method to
36 effectuate an equitable allocation and apportionment of the taxpayer's
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1 income.
2 (b)(1) If the allocation and apportionment
3 provisions of this article do not fairly represent the extent of business
4 activity in this state of taxpayers engaged in a particular industry or in a
5 particular transaction or activity, the secretary, in addition to the
6 authority provided in subsection 18(a) of this article, may establish
7 appropriate rules for determining alternative allocation and apportionment
8 methods for the taxpayers.
9 (2) A rule adopted under this subsection 18(b)
10 shall be applied uniformly, except that with respect to any taxpayer to which
11 the rule applies, the taxpayer may petition for or the secretary may require
12 an adjustment under subsection 18(a) of this article.
13 (c) The party petitioning for or the secretary
14 requiring the use of any method to effectuate an equitable allocation and
15 apportionment of the taxpayer's income under subsection 18(a) of this article
16 shall prove that the:
17 (1) Allocation and apportionment provisions of
18 this article do not fairly represent the extent of the taxpayer's business
19 activity in this state; and
20 (2) Alternative to the allocation and
21 apportionment provisions of this article is reasonable.
22 (d) The same burden of proof shall apply whether the
23 taxpayer is petitioning for or the secretary is requiring the use of any
24 reasonable method to effectuate an equitable allocation and apportionment of
25 the taxpayer's income.
26 (e) Notwithstanding subsection 18(d) of this
27 article, if the secretary demonstrates that in any two (2) of the prior five
28 (5) tax years, the taxpayer used an allocation or apportionment method at
29 variance with the allocation or apportionment method or methods the taxpayer
30 used for the other tax years, then the secretary shall not bear the burden of
31 proof in imposing a different allocation or apportionment method under
32 subsection 18(a) of this article.
33 (f) If the secretary requires a different allocation
34 or apportionment method under subsection 18(a) of this article to effectuate
35 an equitable allocation and apportionment of the taxpayer's income, the
36 secretary shall not impose a civil or criminal penalty with reference to the
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1 tax due that is attributable to the taxpayer's reasonable reliance solely on
2 the allocation and apportionment provisions of this article.
3 (g) A taxpayer that has received written permission
4 from the secretary to use a reasonable method of allocation or apportionment
5 to effectuate an equitable allocation and apportionment of the taxpayer's
6 income shall not have that permission revoked with respect to transactions
7 and activities that have already occurred unless there has been a material
8 change in or a material misrepresentation of the facts provided by the
9 taxpayer upon which the secretary reasonably relied.
10
11 SECTION 2. Arkansas Code � 26-51-202, concerning the income taxation of
12 nonresidents, is amended to add an additional subsection to read as follows:
13 (f) The income of a nonresident corporation or partnership with no
14 physical presence in the state through real or personal property, employees,
15 agents, representatives, or otherwise shall be subject to tax under this
16 chapter if the nonresident's Arkansas receipts under �� 26-51-701 -- 26-51-718
17 exceed two hundred fifty thousand dollars ($250,000) for the current or the
18 immediately preceding tax year.
19
20 SECTION 3. Arkansas Code � 26-51-701 is amended to read as follows:
21 26-51-701. Definitions.
22 As used in this Act, unless the context otherwise requires:
23 (a) "Business income" means income arising from transactions and
24 activity in the regular course of the taxpayer's trade or business and
25 includes income from tangible and intangible property if the acquisition,
26 management, and disposition of the property constitute integral parts of the
27 taxpayer's regular trade or business operations "Apportionable income" means:
28 (1) All income that is apportionable under the United
29 States Constitution and is not allocated under the laws of this state,
30 including:
31 (A) income arising from transactions and activity in
32 the regular course of the taxpayer's trade or business; and
33 (B) income arising from tangible and intangible
34 property if the acquisition, management, employment, development, or
35 disposition of the property is or was related to the operation of the
36 taxpayer's trade or business; and
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1 (2) Any income that would be allocable to this state under
2 the United States Constitution, but that is apportioned rather than allocated
3 pursuant to the laws of this state.
4 (b) "Commercial domicile" means the principal place from which
5 the trade or business of the taxpayer is directed or managed.
6 (c) "Compensation" means wages, salaries, commissions, and any
7 other form of remuneration paid to employees for personal services.
8 (d) [Repealed.]
9 (e) "Nonbusiness Nonapportionable income" means all income other
10 than business apportionable income.
11 (f) "Public utility" means any business entity which owns or
12 operates for public use any plant, equipment, property, franchise, or license
13 for the transmission of communications, transportation of goods or persons,
14 or the production, storage, transmission, sale, delivery, or furnishing of
15 electricity, water, steam, oil, oil products, or gas.
16 (g) "Sales" "Receipts" means all gross receipts of the taxpayer
17 not allocated under �� 26-51-704 -- 26-51-708 and that are received from
18 transactions and activity in the regular course of the taxpayer's trade or
19 business; except that receipts of a taxpayer from hedging transactions and
20 from the maturity, redemption, sale, exchange, loan, or other disposition of
21 cash or securities shall be excluded.
22 (h) "State" means any state of the United States, the District
23 of Columbia, the Commonwealth of Puerto Rico, any territory or possession of
24 the United States, and any foreign country or political subdivision thereof.
25 (i) "This state" means the State of Arkansas.
26
27 SECTION 4. Arkansas Code � 26-51-704 is amended to read as follows:
28 26-51-704. Nonbusiness Nonapportionable income.
29 Rents and royalties from real or tangible personal property, capital
30 gains, interest, dividends, or patent or copyright royalties, to the extent
31 that they constitute nonbusiness nonapportionable income, shall be allocated
32 as provided in �� 26-51-705 -- 26-51-708.
33
34 SECTION 5. Arkansas Code � 26-51-709 is amended to read as follows:
35 26-51-709. Business Apportionable income.
36 For the tax year beginning January 1, 2021, all business All
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1 apportionable income shall be apportioned to this state by multiplying the
2 income by a fraction, the numerator of which is the total sales receipts of
3 the taxpayer in this state during the tax period and the denominator of which
4 is the total sales receipts of the taxpayer everywhere during the tax period.
5
6 SECTION 6. Arkansas Code �� 26-51-716 -- 26-51-718 are amended to read
7 as follows:
8 26-51-716. Sales Receipts from sales of tangible personal property.
9 Sales Receipts from sales of tangible personal property are in this
10 state if:
11 (a) the property is delivered or shipped to a purchaser within
12 this state regardless of the f.o.b. point or other conditions of the sale; or
13 (b) the property is shipped from an office, store, warehouse,
14 factory, or other place of storage in this state and the taxpayer is not
15 taxable in the state of the purchaser, in which case the sales receipts shall
16 be sourced as follows:
17 (1) For the tax year beginning on January 1, 2024, sales
18 receipts shall be sourced eighty-five and seventy-one hundredths percent
19 (85.71%) within this state and fourteen and twenty-nine hundredths percent
20 (14.29%) outside this state;
21 (2) For the tax year beginning on January 1, 2025, sales
22 receipts shall be sourced seventy-one and forty-two hundredths percent
23 (71.42%) within this state and twenty-eight and fifty-eight hundredths
24 percent (28.58%) outside this state;
25 (3) For the tax year beginning on January 1, 2026, sales
26 receipts shall be sourced fifty-seven and thirteen hundredths percent
27 (57.13%) within this state and forty-two and eighty-seven hundredths percent
28 (42.87%) outside this state;
29 (4) For the tax year beginning on January 1, 2027, sales
30 receipts shall be sourced forty-two and eighty-four hundredths percent
31 (42.84%) within this state and fifty-seven and sixteen hundredths percent
32 (57.16%) outside this state;
33 (5) For the tax year beginning on January 1, 2028, sales
34 receipts shall be sourced twenty-eight and fifty-five hundredths percent
35 (28.55%) within this state and seventy-one and forty-five hundredths percent
36 (71.45%) outside this state;
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1 (6) For the tax year beginning on January 1, 2029, sales
2 receipts shall be sourced fourteen and twenty-six hundredths percent (14.26%)
3 within this state and eighty-five and seventy-four hundredths percent
4 (85.74%) outside this state; and
5 (7) For tax years beginning on or after January 1, 2030,
6 sales receipts shall be sourced one hundred percent (100%) outside this
7 state.
8
9 26-51-717. Sales -- Income-producing activity Receipts -- Market for
10 sales.
11 Sales, other than sales of tangible personal property, are in this
12 state if:
13 (a) the income-producing activity is performed in this state; or
14 (b) the income-producing activity is performed both within and
15 without the state, in which event the portion of income allocable to this
16 state shall be the percentage that is used in the formula for allocating
17 income to Arkansas during the year of the sale.
18 (a) Receipts, other than receipts of sales of tangible personal
19 property, are in this state if the taxpayer's market for the sales is in this
20 state. The taxpayer's market for sales is in this state:
21 (1) in the case of sale, rental, lease, or license of real
22 property, if and to the extent the property is located in this state;
23 (2) in the case of rental, lease, or license of tangible
24 personal property, if and to the extent the property is located in this
25 state;
26 (3) in the case of sale of a service, if and to the extent the
27 service is delivered to a location in this state; and
28 (4) in the case of intangible property:
29 (A) that is rented, leased, or licensed, if and to the
30 extent the property is used in this state, provided that intangible property
31 utilized in marketing a good or service to a consumer is used in this state
32 if that good or service is purchased by a consumer in this state; and
33 (B) that is sold, if and to the extent the property is
34 used in this state, provided that:
35 (i) a contract right, government license, or similar
36 intangible property that authorizes the holder to conduct a business activity
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1 in a specific geographic area is used in this state if the geographic area
2 includes all or part of this state;
3 (ii) receipts from intangible property sales that
4 are contingent on the productivity, use, or disposition of the intangible
5 property shall be treated as receipts from the rental, lease, or licensing of
6 such intangible property under subdivision (a)(4)(B)(i) of this section; and
7 (iii) all other receipts from a sale of intangible
8 property shall be excluded from the numerator and denominator of the receipts
9 factor.
10 (b) If the state or states of assignment under subsection (a) of this
11 section cannot be determined, the state or states of assignment shall be
12 reasonably approximated.
13 (c) If the taxpayer is not taxable in a state to which a receipt is
14 assigned under subsection (a) or subsection (b) of this section, or if the
15 state of assignment cannot be determined under subsection (a) of this section
16 or reasonably approximated under subsection (b) of this section, such
17 receipts shall be excluded from the denominator of the receipts factor.
18 (d) The Secretary of the Department of Finance and Administration may
19 prescribe rules as necessary or appropriate to carry out the purposes of this
20 section.
21 (e)(1) Notwithstanding subsection (a) of this section, a person that
22 is principally engaged in the sale of telecommunications service, mobile
23 telecommunications service, internet access service, cable television
24 service, community antenna television service, or direct-to-home satellite
25 television programming service, or a combination of these services, may elect
26 to source sales under this subsection for tax years beginning on or after
27 January 1, 2026, but before December 31, 2035.
28 (2) An election under subdivision (e)(1) of this section shall
29 be made on the taxpayer's return for the first tax year for which the
30 taxpayer is eligible for the election, and once made, an election under
31 subdivision (e)(1) of this section cannot be changed for subsequent years
32 without approval in writing by the secretary.
33 (3) Under this subsection, sales, other than sales described in
34 � 26-51-716, are in this state if:
35 (A) The income-producing activity is performed in this
36 state; or
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1 (B) The income-producing activity is performed both in and
2 outside this state and a greater proportion of the income-producing activity
3 is performed in this state than in any other state, based on costs of
4 performance.
5
6 26-51-718. Procedure when allocation does not fairly represent
7 taxpayer's business activity.
8 (a) If the allocation and apportionment provisions of this Act do not
9 fairly represent the extent of the taxpayer's business activity in this
10 state, the taxpayer may petition for or the Secretary of the Department of
11 Finance and Administration may require, in respect to all or any part of the
12 taxpayer's business activity, if reasonable:
13 (a)(1) separate accounting;
14 (b)(2) the inclusion of one or more additional factors
15 which will fairly represent the taxpayer's business activity in this state;
16 or
17 (c)(3) the employment of any other method to effectuate an
18 equitable allocation and apportionment of the taxpayer's income.
19 (b)(1) If the allocation and apportionment provisions of this Act do
20 not fairly represent the extent of business activity in this state of
21 taxpayers engaged in a particular industry or in a particular transaction or
22 activity, the secretary, in addition to the authority provided in subsection
23 (a) of this section, may establish appropriate rules for determining
24 alternative allocation and apportionment methods for the taxpayers.
25 (2) A rule adopted under this subsection shall be applied
26 uniformly, except that with respect to any taxpayer to which the rule
27 applies, the taxpayer may petition for or the secretary may require an
28 adjustment under subsection (a) of this section.
29 (c) The party petitioning for or the secretary requiring the use of
30 any method to effectuate an equitable allocation and apportionment of the
31 taxpayer's income under subsection (a) of this section shall prove that the:
32 (1) Allocation and apportionment provisions of this Act do not
33 fairly represent the extent of the taxpayer's business activity in this
34 state; and
35 (2) Alternative to the allocation and apportionment provisions
36 of this Act is reasonable.
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SB567
1 (d) The same burden of proof shall apply whether the taxpayer is
2 petitioning for or the secretary is requiring the use of any reasonable
3 method to effectuate an equitable allocation and apportionment of the
4 taxpayer's income.
5 (e) Notwithstanding subsection (d) of this section, if the secretary
6 demonstrates that in any two (2) of the prior five (5) tax years the taxpayer
7 used an allocation or apportionment method at variance with the allocation or
8 apportionment method or methods the taxpayer used for the other tax years,
9 then the secretary shall not bear the burden of proof in imposing a different
10 allocation or apportionment method under subsection (a) of this section.
11 (f) If the secretary requires a different allocation or apportionment
12 method under subsection (a) of this section to effectuate an equitable
13 allocation and apportionment of the taxpayer's income, the secretary shall
14 not impose a civil or criminal penalty with reference to the tax due that is
15 attributable to the taxpayer's reasonable reliance solely on the allocation
16 and apportionment provisions of this Act.
17 (g) A taxpayer that has received written permission from the secretary
18 to use a reasonable method of allocation or apportionment to effectuate an
19 equitable allocation and apportionment of the taxpayer's income shall not
20 have that permission revoked with respect to transactions and activities that
21 have already occurred unless there has been a material change in or a
22 material misrepresentation of the facts provided by the taxpayer upon which
23 the secretary reasonably relied.
24
25 SECTION 7. Arkansas Code � 26-51-722 is repealed.
26 26-51-722. Effective date.
27 The provisions of this Act shall be applicable to all income earned or
28 accrued in the income years, both calendar and fiscal, beginning on or after
29 January 1, 1961.
30
31 SECTION 8. EFFECTIVE DATE. This act is effective for tax years
32 beginning on and after January 1, 2026.
33
34
35
36
16 03/26/2025 2:53:52 PM JLL351Every fact on this page links to its source, starting with the official bill record.