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Arkansas LLC Taxes

By default, Arkansas LLCs are taxed as pass-through entities. The LLC itself does not pay federal taxes. Instead the revenue from the business is passed through to the LLC’s owners, who then report it as income on their personal taxes. The owners of the Arkansas LLC will have their income taxed at the 15.3% federal self-employment tax rate. However, most businesses (including Arkansas LLCs) have to pay state and local taxes as well.

In this article, we'll cover:

  1. How Are Arkansas LLCs Taxed?
  2. Arkansas State Income Tax
  3. Sales and Use Tax
  4. Local Arkansas Taxes
  5. Other Taxes in Arkansas
  6. Do foreign LLCs in Arkansas need to pay Arkansas taxes?

How Are Arkansas LLCs Taxed?

Arkansas LLCs that maintain their default tax status will be taxed as a sole-proprietorship (single-member LLC) or partnership (multi-member LLC). The tax forms you’ll need to file with the IRS are:

Your Arkansas LLC can also choose to be taxed as an S-corp or a C-corp. Find out what these tax statuses will mean for your business.

Arkansas LLCs taxed as S-corp

S-Corp tax status might be beneficial to your Arkansas LLC if you’re hoping to attract investors. With S-Corp status, your LLC will still be taxed as a pass-through entity. However, members can receive profit distributions without being required to pay the federal self-employment tax. To change your tax status, you’ll need to file Form 2553 with the IRS.

However, not all LLCs will benefit from electing S-Corp status. So, it’s a good idea to seek advice from a CPA before moving forward. In addition, you’ll need to check the IRS requirements for S-corps to make sure your LLC meets specific requirements.

S-corps report their income to the IRS by filing Form 1120-S.

LLCs taxed as C-corp

Although uncommon, your Arkansas LLC does have the option to be taxed as a C-corp, which is the default tax status for corporations. Some LLCs can benefit from being taxed as a C-corp. C-corps are more attractive to investors and are eligible for greater tax deductions than typical LLCs. However, C-corps need to pay the 21% federal corporate income tax, the Arkansas Annual Franchise Tax, as well as the Arkansas corporate income tax. So be sure to consult a CPA before electing an alternate tax status for your LLC.

C-corps file Form 1120 with the IRS.

Learn how to apply for C-corp status as an LLC.

Arkansas State Income Tax

Arkansas has a graduated income tax rate that tops out at 4.9%. Here’s the breakdown:

Taxable Income Arkansas Income Tax Rate
$0 – $4,999 0%
$5,000 – $9,999 2%
$10,000 – $14,299 3%
$14,300 – $23,599 3.4%
$23,600 – $84,500 4.9%

Arkansas LLCs that elect C-Corp tax status will have to pay the Arkansas corporate income tax. For tax years beginning on or after January 1, 2022, the following is required for respective taxable incomes:

2022 Taxable Income Arkansas Corporate Tax Rate
Less than $3,000 1%
$3,000 – $6,000 2%
$6,000 – $11,000 3%
$11,000 – $25,000 5%
$25,000 or more 5.9%

Here’s the corporate tax breakdown for businesses beginning on or after January 1, 2023:

2023 Taxable Income Arkansas Corporate Tax Rate
Less than $3,000 1%
$3,000 – $6,000 2%
$6,000 – $11,000 3%
$11,000 – $25,000 5%
$25,000 or more 5.3%

Sales and Use Tax

Arkansas has a 6.5% state sales and use tax. In addition, your LLC will likely need to pay additional city/county sales taxes. For example Almyra, Belleville, and McCrory all charge an additional 1% sales tax. While Lonoke, McGeHee, and Stuttgart require businesses to pay an extra 3% in sales taxes.

Here’s a complete list of Arkansas city tax rates.

Local Arkansas Taxes

It’s important to be aware of any additional taxes your local city or county may assess. For example, several municipalities charge a local tax for services/goods such as hotels, restaurants, private clubs, beer, and mixed drinks.

Other Taxes in Arkansas

Arkansas also requires LLCs (regardless of their tax status) to pay an annual Arkansas Franchise Tax ($150). Here’s a quick breakdown of other taxes the state imposes.

Arkansas State Employer Taxes

Arkansas employers will need to pay unemployment insurance and workers’ compensation taxes:

  • Unemployment Insurance (UI) Tax—If your LLC’s gross payroll is a minimum of $1,000 in a calendar quarter you will need to pay an unemployment tax. The tax rate for unemployment insurance in Arkansas ranges from .1% to 14%. The new employer rate is 2.9%, which ends after three years. The taxable wage base is $10,000. To find out more you can reference the Arkansas Employer Handbook.
  • Workers’ Compensation—Arkansas requires most businesses that employ at least three employees to purchase workers’ compensation insurance. The average cost of workers compensation insurance is $0.84 per $100 covered in your payroll. Coverage can be obtained through a Workers’ Compensation insurance policy or by receiving a state-approved self-insured policy.

To learn more about Arkansas employer taxes, visit the Arkansas Department of Labor and Licensing website.

Industry Taxes

Your Arkansas LLC may need to pay additional taxes based on what your services are or what you’re selling. Here’s a list of industry specific taxes:

  • Liquor Excise Tax
  • Parks and Tourism Tax
  • Electricity Manufacturing Tax
  • Wholesale Vending Tax
  • Beer Excise Tax
  • Short Term Rental Vehicle Tax
  • Long Term Rental Vehicle Tax
  • Mixed drink Tax
  • Residential Moving Tax
  • Aviation sales and use Tax

Do foreign LLCs in Arkansas need to pay Arkansas taxes?

Yes. If you have an Arkansas Foreign LLC, which is an LLC that was initially formed outside Arkansas, but does business within the state, you will be responsible for paying state and local taxes. In addition, you’ll need to file an annual Arkansas Franchise Tax Report ($150).