Current through Register Vol. 49, No. 9, September, 2024
A. GENERAL.
Persons in the established business of leasing or renting articles of tangible
personal property to consumers are sellers and must collect and remit tax upon
the gross receipts or gross proceeds derived from the lease or rental of the
property.
B. DEFINITIONS.
1. "Commercial shipping" means either:
a. The service of transporting the personal
property of another for gain or profit; or
b. Transporting one's goods from place to
place if the expense of renting the vehicle is an ordinary and necessary
expense of the lessee's business operation for federal and Arkansas income tax
purposes.
2. "Long-term
lease" means a contract to rent or lease property for a term of thirty (30)
days or longer to a single consumer.
3. "Long-term rental vehicle tax" means the
one and one-half percent (1 1/2) tax levied pursuant to Ark. Code Ann. §
26-63-304
on the entire monthly (or other periodic) payment for the long-term lease of a
motor vehicle required to be licensed for use on the highway. (See
ET-7.)
4. "Motor vehicle" means a
vehicle which is self-propelled and is required to be registered for use on the
highway, and does not include trailers or semi-trailers.
5. "Periodic payment" includes all charges,
fees, taxes, interest, penalties, late payments, or other amounts included in
the lease agreement as due and payable by the lessee to the lessor on a monthly
or other periodic basis as consideration for the lease of the motor vehicle.
With respect to leases containing a terminal rental adjustment clause ("TRAC"),
the upward adjustment of a lease payment is considered part of the entire
monthly payment subject to tax. In the event that a lease payment is adjusted
downward under a TRAC, the lessor is entitled to take a deduction from gross
receipts for such downward adjustment if the lessor refunds to the lessee taxes
previously collected from the lessee.
6. "Rental vehicle tax" means the tax levied
pursuant to Ark. Code Ann. § 26-63302 and is equal to ten percent (10%) of the
gross receipts or gross proceeds derived from the short-term rental of a motor
vehicle, plus a local rental vehicle tax equal to the sales tax rate of the
city and county in which the lessor's business is located. (See
ET-6.)
7. "Short-term rental" means
a contract to lease property for a term of less than thirty (30) days to a
single consumer.
8. "Short-term
rental tax" means the one percent (1%) tax levied pursuant to Ark. Code Ann. §
26-63-301
on the entire payment for the short-term rental of tangible personal property.
(See ET-5.)
9. "Vehicle" means
every device in, upon, or by which any person or property is, or may be
transported upon a highway and which is required to be registered for use on
the highway, and includes trailers and semi-trailers.
C. LONG-TERM LEASES OF TANGIBLE PERSONAL
PROPERTY (Except for Motor Vehicles).
1. For
long-term leases of tangible personal property, except for motor vehicles, the
lessor may either purchase the property tax-free as a sale for resale or pay
Arkansas sales and use tax on the purchase. If the lessor purchases property
intended for subsequent lease without paying Arkansas gross receipts or use
tax, he must establish the requirements necessary for a sale-for-resale
exemption. (See GR-53.) At the time of purchase, the lessor must elect to pay
the tax on property intended for long term lease or purchase the property tax
free as a sale for resale. This election may not be changed after the
purchase.
2. If the lessor of
property paid Arkansas gross receipts or use tax on the purchase of the item,
the lessor is not required to collect gross receipts tax on subsequent
long-term leases of the property.
3. Repair parts purchased by the lessor to
keep the leased property in working order are taxable, unless the property was
initially purchased exempt from tax as a sale for resale.
4. See GR-38.2 for the exemption for leases
of durable medical equipment, mobility-enhancing equipment, and prosthetic
devices.
D. LONG-TERM
LEASES OF MOTOR VEHICLES.
1. With respect to
motor vehicles leased on a long-term basis on or after August 1, 1997, the
lessor has the option of the following:
a.
Remitting sales or use tax on the purchase price of the motor vehicle at the
time of registration (Option 1); or
b. Registering the motor vehicle exempt from
tax (Option 2).
2.
Option 1.
a. If the lessor chooses Option 1,
then the lessor will not collect sales tax or long-term rental vehicle tax on
the consideration for the lease of the motor vehicle paid by the lessee. No tax
shall be collected by the lessor on the lease of motor vehicles that have been
previously titled and registered in another state by the lessor if sales or use
tax was paid to the other state on the purchase price of the vehicle and the
total tax paid to the other state equals or exceeds the combined Arkansas state
and local use tax as applied to the purchase price of the motor
vehicle.
b. If the lessee makes an
initial payment on the lease in the form of a payment of money or by
transferring ownership of another motor vehicle, no deduction shall be
permitted from the value of the leased motor vehicle for purposes of computing
the sales or use tax due on the leased motor vehicle at the time of
registration. The trade-in deduction available to purchasers of motor vehicles
and described in GR-12 shall not apply to leased motor vehicles. The deduction
available to purchasers on account of the sale of a used motor vehicle and
described in GR-12.1 shall not apply to leased motor vehicles.
Example 1: Lessee owns a used motor vehicle valued at
$5,000.00. Lessee enters into a long term lease arrangement with Lessor and
agrees to transfer the used motor vehicle to Lessor as an initial payment on
the lease. When the motor vehicle is registered, there is no deduction for the
$5,000.00 value of the used motor vehicle.
Example 2: Lessee owns a used motor vehicle which he sells
for $5,000.00. Lessee enters into a long term lease arrangement with Lessor and
agrees to pay $5,000.00 as an initial payment on the lease. When the motor
vehicle is registered, there is no deduction for the $5,000.00, which resulted
from the sale of the used motor vehicle.
3. Option 2.
a. If the lessor chooses Option 2, then the
lessor must collect sales tax and long-term rental vehicle tax on all gross
receipts paid or transferred by the lessee as consideration for the lease of
the motor vehicle, including down payments and periodic payments. The lessor
must report and remit sales tax and long-term rental vehicle tax regardless of
whether the lessee timely makes the lease payments required in the lease
agreement. Assignment of a lease agreement does not relieve the lessor from the
obligations to remit sales or use tax and long-term rental vehicle tax. The
lessor's obligation to remit tax ends at the earlier of the expiration of the
lease term, or the valid termination of the lease as provided by the terms of
the written lease agreement.
b. If
the lessee makes an initial payment on the lease in the form of a payment of
money or by transferring ownership of another motor vehicle, the value of the
payment or motor vehicle is considered taxable gross receipts upon which gross
receipts tax and long-term rental vehicle tax are due.
Example 1: Lessee owns a used motor vehicle valued at
$5,000.00. Lessee enters into a long term lease arrangement with Lessor and
agrees to transfer the used motor vehicle to Lessor as an initial payment on
the lease. Lessor must collect gross receipts and long-term rental vehicle tax
on $5,000.00 as consideration for the lease of the motor vehicle.
Example 2: Lessee owns a used motor vehicle which he sells
for $5,000.00. Lessee enters into a long term lease arrangement with Lessor and
agrees to pay $5,000.00 to Lessor as an initial payment on the lease. Lessor
must collect gross receipts and long-term rental vehicle tax on $5,000.00 as
consideration for the lease of the motor vehicle.
c. Trailers and semi-trailers are not "motor
vehicles" and may not be registered exempt from gross receipts tax. The
long-term lease of a trailer or semitrailer which has been registered and
titled in Arkansas is not subject to gross receipts or long-term rental vehicle
tax.
d. A motor vehicle used for
long-term or short term rental that was registered in Arkansas and Arkansas
sales or use tax was paid or credited prior to August 1, 1997, may be leased on
a long-term basis without the collection of sales tax and long-term rental
vehicle tax. This presumes that the lessor remains the same. If the original
lessor sells the motor vehicle on or after August 1, 1997, then the new lessor
has the options described in GR-20(D)(1).
e. A motor vehicle that was registered exempt
from sales tax or use tax prior to August 1, 1997, as a short-term rental
vehicle may be subsequently leased on a long-term basis. The lessor must choose
Option 1 or Option 2 as described in GR-20(D)(1).
(1) If the lessor chooses Option 1, then the
lessor must only re-title the vehicle in the lessor's name and pay sales tax at
the time of registration. The sales tax will be based on the lessor's purchase
price of the vehicle.
(2) If the
lessor chooses Option 2, then the lessor must register with the Sales and Use
Tax Section as a long-term rental business, obtain a new rental exemption
certificate from the Sales and Use Tax Section, and retitle the vehicle in the
lessor's name. No sales tax will be paid at the time of registration; however,
the lessor must collect and remit sales tax and long-term rental vehicle tax on
the monthly (or other periodic) lease payments.
4. Definitions for Motor Vehicle Leasing.
a. A motor vehicle is "leased on a long-term
basis on or after August 1, 1997," when the written lease agreement covering
the motor vehicle is signed by the lessee on or after August 1, 1997, and the
motor vehicle was not registered and titled in Arkansas by the lessor before
August 1, 1997.
b. Rental term.
Whether a rental of a motor vehicle is considered long-term or short-term is
dependent on the written contract and period for which payment is initially
due. If a vehicle is rented initially for fourteen (14) days with the rental
contract reflecting a term of rental for fourteen (14) days and the customer
subsequently decides to continue renting the vehicle for twenty-one (21) more
days, the transaction is treated as two short-term rentals, not one long-term
rental.
c. "Lessor" means the
person who owns the motor vehicle at the time that the lessee signs the lease
agreement. The lessor is presumed to be the vehicle owner if the vehicle is
titled in the name of the lessor or if the lessor is the last person to whom
the vehicle title has been assigned at the time of the lease agreement. Lessor
does not include an assignee of the lease agreement or of the vehicle when the
assignment occurs after the lessee signs the lease.
5.
a. If a
motor vehicle is initially leased to an Arkansas resident under Option 2 and
the lessee later becomes a resident of another state during the term of the
lease, then the lessor is no longer required to collect and remit Arkansas
sales tax and long-term rental tax on the remainder of the monthly lease
payments. The lessor must maintain records which accurately reflect that the
motor vehicle is no longer leased to an Arkansas resident.
b. If a motor vehicle is initially leased to
a resident of another state and the lessee later becomes a resident of Arkansas
during the term of the lease, then the lessor must begin collecting and
reporting Arkansas sales tax and long-term rental tax only if no tax was paid
to another state when the motor vehicle was registered and the lessor chooses
Option 2. If no tax was paid to another state and the lessor chooses Option 1,
then the lessor must pay state and local use tax on the stated invoice price of
the motor vehicle and not collect sales or long-term rental tax from the
lessee. If tax was paid to another state and the motor vehicle was first
registered in another state, then the lessor is entitled to credit against the
Arkansas use tax for taxes paid to the other state, and pay the balance due, if
any.
Example 1: Lessee is a Georgia resident at the inception of
the twenty-four (24) month motor vehicle lease which notes the invoice price of
the motor vehicle as $30,000. The motor vehicle was registered in Georgia;
however, no Georgia sales tax was paid. The lessor collected applicable Georgia
sales taxes on the monthly rental payments. One year later, Lessee becomes an
Arkansas resident and brings his leased car to Arkansas. Lessor chooses Option
1. When Lessee (or Lessor) registers the motor vehicle in Arkansas, Arkansas
use tax is due based on the invoice price of $30,000. Lessor will not be
obligated to collect and remit tax on the monthly lease payments. No credit is
given for taxes paid on the monthly lease payments.
Example 2: Lessee is a Georgia resident at the inception of
the twenty-four (24) month motor vehicle lease which notes the invoice price of
the motor vehicle as $30,000. The motor vehicle was registered in Georgia;
however, no Georgia sales tax was paid. The lessor collected applicable Georgia
sales taxes on the monthly rental payments. One year later, Lessee becomes an
Arkansas resident and brings his leased car to Arkansas. Lessor chooses Option
2. Lessor must obtain an Arkansas sales tax permit and rental exemption
certificate before the motor vehicle may be registered tax free. Lessor must
collect and remit tax on the monthly lease payments.
Example 3: Lessee is a Georgia resident at the inception of
the twenty-four (24) month motor vehicle lease which notes the invoice price of
the motor vehicle as $30,000. The motor vehicle was registered in Georgia and
Georgia sales tax paid on the invoice price. The Georgia sales tax rate exceeds
the Arkansas sales tax rate. One year later, Lessee becomes an Arkansas
resident and brings his leased car to Arkansas. Lessor is not required to
collect and remit tax on the monthly lease payments because tax was paid to
Georgia when the vehicle was registered.
Example 4: Lessee is a Georgia resident at the inception of
the twenty-four (24) month motor vehicle lease which notes the invoice price of
the motor vehicle as $30,000. The motor vehicle was registered in Georgia and
Georgia sales tax paid on the invoice price. The Georgia sales tax rate is less
than the Arkansas sales tax rate. One year later, Lessee becomes an Arkansas
resident and brings his leased car to Arkansas. If Lessor chooses Option 1,
Lessor is to pay the difference between the Georgia tax and Arkansas tax at
registration. If Lessor chooses Option 2, Lessor must obtain an Arkansas sales
tax permit and rental certificate. Lessor must collect and remit tax on the
monthly rental payments.
6. Direct Pay Permit.
Option 1: Sales or use tax must be paid at the time of
registration of the motor vehicle. A lessee holding a direct pay permit may not
accrue and remit sales or use tax on the motor vehicle.
Option 2: If a lessee holds a direct pay tax permit, then the
lessor is not obligated to collect state and local sales tax or long-term
rental tax from the lessee. The lessor must maintain records reflecting that
the lessee intends to report and remit the tax on its monthly tax report under
its direct pay permit number. No Manufacturer's Investment Credit or InvestArk
may be taken to offset liability of a direct pay permit holder for long-term
rental tax or short-term rental tax.
7. International Registration Plan.
a. "International registration plan" means
the International Registration Plan, Inc. ("IRP"), the Uniform Vehicle
Registration Proration and Reciprocity Agreement, or any other registration
plan that provides for the apportionment of a commercial vehicle's registration
fee in a manner consistent with Ark. Code Ann. §
27-14-501, et
seq.
b. The taxability of gross
receipts derived from a truck or trailer registered under the Arkansas IRP is
determined by GR-20(D).
E. SHORT-TERM RENTALS OF TANGIBLE PERSONAL
PROPERTY (Except for Motor Vehicles).
1. In
addition to the state and local sales tax, a one percent (1%) short-term rental
tax (see Ark. Code Ann. §
26-63-301
and ET-5) is to be collected by the lessor on short-term rentals of tangible
personal property regardless of whether Arkansas gross receipts or use tax was
paid by the lessor at the time of purchase.
2. A lessor may purchase property intended
for subsequent lease without paying Arkansas gross receipts or use tax if the
seller establishes the requirements necessary for a sale-for-resale exemption.
(See GR-53.)
3. Repair parts
purchased to keep the rental property in working order are exempt from gross
receipts tax as sales for resale. (See GR-53.)
4. Lessors must maintain sufficient records
to establish the intended term of the rental. In the absence of adequate
documentation, payment by the lessee for rental charges for periods of less
than thirty (30) days shall be evidence that the term of the rental was for
less than thirty (30) days.
F. SHORT-TERM RENTALS OF MOTOR VEHICLES.
1. All short-term rentals of motor vehicles,
including diesel trucks, are subject to state and local gross receipts tax
regardless of whether tax was paid on the vehicle at registration. In addition
to the state and local gross receipts (sales) tax, every person in the business
of renting licensed motor vehicles in Arkansas must collect rental vehicle tax
(see Ark. Code Ann. §
26-63-302 and
ET-6) on short-term rentals of licensed motor vehicles. See GR-12(D)(2) for
definition of "licensed motor vehicle".
2. The gross receipts or gross proceeds
derived from the sale of a motor vehicle to a person engaged in the business of
renting a motor vehicle required to be licensed is exempt from state and local
sales or use taxes if the motor vehicle is used exclusively for the purpose of
rentals for periods of less than thirty (30) days.
3. The lessor must retain records for at
least six (6) years that establish the rental history of each vehicle including
copies of written contracts with the lessee and mileage incurred on the vehicle
by each lessee. Failure to adequately document the exclusive use of the vehicle
for rentals will constitute a presumption that the vehicle was not exclusively
used for rentals resulting in the revocation of the sales tax exemption claimed
at the time of registration of the vehicle. (See GR-12.)
G. RENTAL OF TANGIBLE PERSONAL PROPERTY WITH
OPERATOR. If tangible personal property is rented with an operator's services
included, the rental of the property and operator service is a non-taxable
service, provided that the service alone would have been exempt from tax. If,
however, the property alone is rented, then the sales and rental tax shall
apply.
H. The chart below sets
forth the various taxes that must be collected on the described short term
rentals.
I. The lease or rental of
tangible personal property, including motor vehicles, is sourced in accordance
with Ark. Code Ann. §
26-52-521 and
GR-76.
|
SHORT TERM RENTALS Less than 30
days |
State Sales Tax 6% +
local |
Residential
Moving Tax
4.5% |
Rental Vehicle Tax 10% +
local |
Short Term Rental Tax 1% |
Total State Tax Rate |
|
TRUCKS - Diesel
For commercial shipping |
Y |
N |
N |
N |
6% |
|
TRUCKS - Diesel
For residential moving |
Y |
Y |
N |
N |
10.5% |
|
TRUCKS - Diesel
For purpose other than residential moving or
commercial shipping |
Y |
N |
Y |
N |
16% |
|
TRUCKS - Gasoline For residential
moving |
Y |
Y |
N |
N |
10.5% |
|
TRUCKS - Gasoline For any other
purpose |
Y |
N |
Y |
N |
16% |
|
CARS, MOTORCYCLES |
Y |
N |
Y |
N |
16% |
|
TRAILERS WITH
VEHICLE
For residential moving |
Y |
Y |
N |
N |
16% |
|
TRAILERS WITH
VEHICLE
For commercial shipping with diesel
truck |
Y |
N |
N |
N |
6% |
|
TRAILERS WITH VEHICLE (see note 1) For other
purpose |
Y |
N |
Y |
N |
16%
See note 1 below. |
|
TRAILERS W/O
VEHICLE
For residential moving |
Y |
N |
N |
N |
6% |
|
TRAILERS W/O
VEHICLE
For commercial shipping |
Y |
N |
N |
N |
6% |
|
TRAILERS W/O
VEHICLE
For other purpose |
Y |
N |
N |
N |
6% |
|
MOVING MATERIALS Sale or lease with truck for
residential moving - same invoice |
Y |
Y |
N |
N |
10.5% |
|
MOVING MATERIALS Sale for non-residential move or w/o
truck |
Y |
N |
N |
N |
6% |
|
MOVING MATERIALS Lease for non-residential move or
w/o truck |
Y |
N |
N |
Y |
7% |
Ark. Code Ann. §§
26-52-103;
26-63-301
et seq.
