Arkansas Tax Rates

This post provides an overview of the primary taxes levied at the state level in Arkansas. The information contained here is intended for general reference. For individuals or businesses seeking comprehensive support with tax filings, compliance, or strategic planning, indinero offers expert services. We encourage all who utilize this summary to explore the tailored tax support available through indinero.

Individual Income Tax

Arkansas utilizes a graduated individual income tax system, meaning the tax rate increases as a taxpayer’s income increases. The state has recently enacted rate reductions, making the system competitive among Southern states that levy an income tax.

  • Tax Rates: The current top marginal rate is 3.9% (effective for tax years beginning on or after January 1, 2024). Rates begin at 2.0% for lower taxable income brackets.
  • Brackets: Taxpayers who earn over $25,700 in taxable income are subject to the top rate. The state also has provisions for a Low Income Tax Table for taxpayers with adjusted gross income below certain thresholds.
  • Retirement Income: Social Security benefits are exempt from state income tax, and a portion of qualified pension income is also excluded.

Sales and Use Tax

Sales tax is a significant source of state and local revenue in Arkansas, resulting in one of the highest combined sales tax rates in the nation.

  • State Rate: The state sales tax rate is 6.5% on the retail sale of tangible personal property, leases, and rentals, as well as some services.
  • Local Taxes: Local jurisdictions (cities and counties) impose their own sales taxes, which can add substantial amounts to the state rate. The average combined state and local sales tax rate is approximately 9.48%, though the total rate can be as high as 11.5% in some localities.
  • Reduced Food Tax: Arkansas maintains a reduced state sales tax rate on groceries, which is currently very low compared to the general rate.

Property Tax

In Arkansas, property taxes are not levied at the state level. They are exclusively local taxes used to fund local services, including public education.

  • Assessment Ratio: Real and personal property is assessed at 20% of its true market value.
  • Millage Rate: The tax is calculated by multiplying the assessed value by the local millage rate. A mill represents one-tenth of one cent ($0.001). These rates are set by local governing bodies, such as county quorum courts, city councils, and school boards, and they vary significantly by location.
  • Effective Rate: The effective property tax rate on owner-occupied housing value is generally quite low compared to the national average.

Corporate Income Tax

Arkansas levies a graduated income tax on the net income of corporations derived from sources within the state.

  • Tax Rates: The state utilizes a progressive rate structure, with the top marginal rate being 4.3% (effective for tax years beginning on or after January 1, 2024). This rate applies to net income exceeding $11,000. Lower income brackets are taxed at rates starting at 1.0%.
  • Apportionment: For multi-state businesses, Arkansas determines taxable income using a modified version of the three-factor formula, which includes sales, property, and payroll.

Key Excise and Miscellaneous Taxes

Arkansas imposes several other specific excise and transaction taxes.

  • Motor Fuel Tax: A per-gallon tax is levied on motor fuels, including gasoline and diesel, with the rate currently set at 25 cents per gallon.
  • Cigarette Tax: The state imposes an excise tax on cigarettes, currently $1.15 per pack of 20 cigarettes.
  • Parks and Tourism Tax: The state imposes a specific sales tax rate to fund parks and tourism initiatives.

Pass-through Entity Tax: Partnerships and S corporations may elect to pay tax at the entity level at the highest marginal individual income tax rate, allowing members to receive a federal deduction for the state taxes paid.

R&D Offer Quiz

Step 1 of 3

Answer to find out if you're eligible for R&D tax credits.

Do the activities performed relate to a new or improved business component’s function, performance, reliability, quality, or composition?(Required)
For Example: A mid-sized packaging company develops a slightly modified cardboard box design to improve its stacking strength (reliability) for warehouse storage, involving minor adjustments to the corrugation pattern to reduce collapse under standard weight loads.
Is your company trying to discover information to eliminate uncertainty concerning the capability or method for developing or improving a business component?(Required)
For Example: A furniture manufacturer investigates whether a cheaper wood adhesive can hold joints as effectively as the current one during assembly, testing bond strength to resolve doubts about its capability in standard production lines.
Do the activities performed constitute a process of experimentation?(Required)
For Example: An auto parts supplier runs a series of bench tests on different lubricant formulations to find one that reduces friction in engine bearings more effectively, systematically comparing wear rates over simulated operating cycles.