Current through Register Vol. 49, No. 9, September, 2024
A. DELIVERY CHARGES. Delivery charges are
part of the gross receipts or gross proceeds on which the tax must be collected
and remitted unless the charges are billed directly to the purchaser by a
carrier other than the seller.
1. If the
tangible personal property being shipped is exempt from sales and use tax, the
delivery charges are also exempt from tax.
2. If a shipment includes tax-exempt property
and taxable property, the seller must pay the tax imposed only on the
percentage of the delivery charge allocated to the taxable property. To
determine the percentage, the seller may use either of the following options:
a. A percentage based on the total sales
price of the taxable property compared to the total sales price of all property
in the shipment; or
b. A percentage
based on the total weight of the taxable property compared to the total weight
of all the property in the shipment.
B. USED MERCHANDISE. The gross receipts
derived from the sale of used tangible personal property are subject to the tax
except as otherwise provided. (See also GR-50, GR-51, GR-13, GR-14, and GR-15.)
1. Taxpayers may deduct the value of any
returned merchandise from gross receipts on the monthly report if the full
purchase price and tax have been refunded to the customer. Sufficient records
must be kept to establish that this requirement has been met.
2. Property which has been repossessed or
voluntarily returned without a full refund of the purchase price cannot be
classified as returned merchandise and upon its resale, the taxpayer should
collect and remit the tax on the gross proceeds derived from the resale. Where
the records of any business are kept so as to distinguish sales of repossessed
merchandise from other sales then upon the resale of repossessed merchandise,
the amount of tax to be remitted is the difference between the amount of tax
previously remitted on the original sale and the amount of tax computed on the
total price realized from both the original sales and resale of such
merchandise.
Example 1: Seller sells merchandise for $10,000 on credit.
Purchaser pays $3,000, then defaults on the payment agreement. Seller
repossesses merchandise and resells for $8,000. (Assume 5% tax.) Tax on
original sale was $500 ($10,000 x 5% = $500). Proceeds received from both
original sale and resale = $11,000 ($3,000 + $8,000). Tax computed on total
proceeds = $550 ($11,000 x 5%) Difference = $50 ($550 - $500). Tax to be
remitted to the Director on resale is $50.
Example 2: Same facts except merchandise resells for $6,000.
Now total proceeds = $9,000. Tax computed on total proceeds = $450. Seller
entitled to refund of $50 on resale.
C. INSTALLATION CHARGES. If a seller is
engaged in the established business of selling and installing tangible personal
property in Arkansas, and the sales price of the property includes the
installation charges as a part of the total sales price, the gross receipts tax
should be collected on the total sales price. If the installation charges are
separately stated on the invoice or bill of sale, tax is not due on the
separate installation charge, unless the installation is a specifically
enumerated taxable service such as the installation services in GR-9 or
GR-9.17. Charges for installation services which are taxable under GR-9 or
GR-9.17 of these rules are taxable even if they are separately
stated.
D. WITHDRAWAL FROM STOCK.
1. Withdrawal of purchased goods. If a seller
has a retail permit and purchases goods from its suppliers without paying tax
to those suppliers claiming the "sale for resale" exemption and the seller
withdraws the merchandise from stock and gives the merchandise to customers or
other third parties, or uses the merchandise itself, then the value of this
merchandise is a part of the seller's gross receipts or gross proceeds and the
seller must remit the tax on the purchase price of the goods paid by the
seller.
2. Withdrawal of
manufactured or processed goods.
a. A business
that manufactures or produces products and sells the products to third parties
or at retail may at times transfer title to certain of those products to itself
or give the products to another person or entity. The business should report
and remit tax on the sales price of the products rather than the value of the
raw materials used to manufacture or produce the products.
b. A business that manufactures or produces
products and transfers title to certain of those products to itself in a
capacity other than as the manufacturer should determine the tax treatment of
the transfer as follows. If the business sells the products to third parties,
then the business should report and remit tax on the sales price of the product
rather than the value of the raw materials. If the business does not sell any
product to third parties, the business is acting as a contractor and should
report and remit tax on the cost of the raw materials withdrawn to produce the
product.
Example 1: A business produces and installs windows. The
business also sells windows to third parties without installation. When the
business sells windows as a manufacturer to itself as a contractor, the
business should remit tax on the sales price of the windows.
Example 2: A business produces and installs windows. The
business does not sell any windows to third parties. When the business produces
and installs the windows, it is acting only as a contractor and should remit
tax on the value of the raw materials used to produce the windows.
3. The value of goods
that are withdrawn from stock by sellers and donated to National Guard members,
emergency service workers, or volunteers providing services in an area declared
a disaster area by the Governor are exempt from tax and are not required to be
reported as part of the seller's gross receipts.
4. Restaurants and other food sellers that
allow employees to consume food free of charge must treat the food as a
withdrawal from stock, unless all of the following apply:
a. The food is surplus that would otherwise
be discarded;
b. The restaurant
does not prepare food in excess of that expected to be consumed to create the
surplus food; and
c. The food is
provided to the employees on an irregular and incidental basis, i.e. when such
surplus exists.
5. Tax
is due at the time the item is withdrawn from stock. The applicable local tax
for a withdrawal from stock is determined by the location at which the item is
withdrawn.
E. WARRANTY
SALES - AUTOMOBILES. (See GR-9(E) and GR-12.)
F. WARRANTY SALES - APPLIANCES. If a seller
is engaged in the business of selling and installing refrigerators or other
appliances to consumers, and the manufacturer of the appliance offers
purchasers an extended warranty for a consideration which may be purchased at
the time the appliance is purchased or at a later date, the seller must collect
sales tax on the price of the warranty whenever it is sold. (See
GR-9(E).)
G. MEMBERSHIP FEES. A
bookstore which sells books from an established business in Arkansas has also
organized a book club. In order to become a member of the club, the bookstore's
customers pay a yearly membership fee. In return for this fee, the club members
may purchase books for ten percent (10%) off the listed store price. Neither
the membership fee nor the value of the discount should be considered gross
receipts or gross proceeds. See GR-11 regarding taxable membership
fees.
H. COUPONS AND BUYDOWNS.
1. Manufacturer's Coupons. All amounts
received by a retailer from a manufacturer or other third party as
reimbursement for a coupon issued by the manufacturer or third party are part
of the gross receipts or gross proceeds for the sale of the product and are
taxable.
Example: A manufacturer or other third party issues a coupon
entitling customers to 25 cents off the retail price of a product. The
manufacturer will reimburse retailers who honor the coupons. The 25 cents
received by the retailer from the manufacturer is part of gross receipts or
gross proceeds. The retailer must collect and remit the tax on the total amount
received from the customer and the manufacturer.
2. Retailer Coupons. The amount of any coupon
that is issued by the retailer and is not reimbursed by any third party is not
part of the gross receipts or gross proceeds received in connection with the
sale of the product and is not taxable. Example: Retailer issues a coupon
entitling customers to 25 cents off the price of a product. Retailer will not
be reimbursed by any third party. The 25 cents is not part of gross receipts or
gross proceeds and the tax is due only on the amount paid by the customer for
the product not including the coupon.
3. Manufacturer's Buydowns. A "buydown" is a
cash payment made to a retailer by a manufacturer as an incentive to the
retailer to reduce the retail price of the manufacturer's products for the
purpose of increasing sales of such products. A buydown is a transaction
between the manufacturer and the retailer, to which the consumer is not a
party. For products on which a buydown has been paid, the buydown is not
considered a part of the gross proceeds or gross receipts paid by
consumers.
I. VEHICLE
MANUFACTURER OR DEALER REBATES. Vehicle manufacturer or dealer rebates are part
of the consideration received for the motor vehicle and are considered part of
the gross proceeds or gross receipts.
J. BAD DEBTS.
1. A taxpayer may deduct bad debts from the
total amount upon which the tax is calculated. For purposes of the bad debt
deduction, the taxpayer is the person required by law to remit to the Director
the tax attributable to the transaction for which the bad debt deduction is
claimed. Unless otherwise provided by statute, the person required by law to
remit sales tax is the seller.
2. A
bad debt may be deducted on the sales and use tax return of a taxpayer for the
tax period during which the bad debt is written off as uncollectible in the
taxpayer's books and records, and the taxpayer is eligible to deduct the bad
debt for federal income tax purposes.
3. A taxpayer may claim a bad debt deduction
on its sales and use tax return if the taxpayer is not required to file a
federal income tax return or if the taxpayer utilizes the cash method of
accounting for income tax. However, a taxpayer may not claim a bad debt
deduction on its sales and use tax return if the taxpayer has received
permission to report and remit sales tax on a cash basis instead of an accrual
basis pursuant to Ark. Code Ann. §
26-52-502
and GR-78.
4. A taxpayer cannot
claim a bad debt deduction on its sales and use tax return before the taxpayer
has reported and remitted the tax for the debt at issue to the state.
5. Debts that are secured by tangible
personal property that has been repossessed upon default do not qualify for the
bad debt deduction.
6. If the
amount of bad debt exceeds the amount of taxable sales for the tax period
during which the bad debt is written off, the taxpayer may file a claim for a
refund. A bad debt must be deducted, or claim for refund filed, within three
(3) years from the due date of the sales and use tax return on which the bad
debt could first be claimed.
7. If
a deduction is taken for a bad debt and the taxpayer subsequently collects the
debt in whole or in part, the tax on the amount so collected shall be paid and
reported on the next return date after the collection. For the purposes of
reporting a payment received on a previously claimed bad debt, any payment made
on a debt or account is applied first proportionally to the taxable price of
the tangible personal property or service and the sales tax on the tangible
personal property or service and second to interest, service charges, and any
other charges.
8. Any deduction
taken or refund paid, which is attributed to bad debts, shall not include
interest.
9. Except as provided in
Ark. Code Ann. §
26-52-309(f),
concerning certified service providers, the only party entitled to a bad debt
deduction or refund pursuant to this section is the taxpayer that originally
reported and remitted the tax in question.
K. None of the above examples should be
construed to limit the definition of "gross receipts," "gross proceeds," or
"sales price".
Ark. Code Ann. §§
26-52-103(6);
26-52-103(13);
26-52-301;
26-52-301(3);
26-52-301(6);
26-52-301(7);
26-52-309;
2652-401(38);
26-52-517
