Arkansas Administrative Code
Agency 006 - Department of Finance and Administration
Division 05 - Division of Revenues
Regulation 1997-4 - Comprehensive Individual Income Tax Regulations
Rule 26-51-404 - GROSS INCOME GENERALLY
Rule 1.26-51-404(a)(2) - Installment Sales - Personal Property

Dealers who sell personal property on the installment plan may elect to report the income on installment sales over the life of the installment contract provided the initial payment is thirty per cent (30%) or less. The rule prescribed is that a person who regularly sells or otherwise disposes of personal property on the installment plan, whether or not title remains in the vendor until the property is fully paid for, may report as income therefrom, in any tax year, the portion of the installment payments actually received in that tax year which the total or gross profit (i.e., payments less cost of goods sold) realized or to be realized when the property is paid for bears to the total contract price. Thus, the income of a dealer in personal property on the installment plan may be ascertained by taking as income that proportion of the total payments received in the tax year from installment sales (such payments being allocated to the tax year against the sales to which they apply) which the total or gross profit realized or to be realized on the total installment sales made during each tax year bears to the total contract price of all such sales made during that respective tax year. A dealer who desires to compute his income on the installment basis shall maintain books of account in such a manner as to enable an accurate computation to be made on such basis in accordance with the provisions of this regulation.

In the case of a casual sale or other casual disposition of personal property other than property of any kind which would properly be included in the inventory of a taxpayer if on hand at the close of the tax year, income may be reported on the installment basis. This method of reporting sales may be utilized provided the payments received in cash or property other than evidences of indebtedness of the purchaser during the tax year in which the sale or other disposition is made do not exceed thirty per cent (30%) of the sale price.

If for any reason the purchaser defaults in any of his payments and the vendor reporting income on the installment basis repossesses the property, the entire amount received in installment payments and retained by the vendor less the sum of the profits previously reported as income and an amount representing proper allowance for damage and use, if any, will be income of the vendor for the tax year in which the property is repossessed and the property repossessed must be carried on the books of the vendor at its original cost less proper allowance for damage and use, if any.

If the vendor chooses, as a matter of consistent practice to report the income from installment sales on the straight accrual or cash receipts and disbursement basis such a course is permissible.

Arkansas did not adopt the federal treatment of installment sales contained in IRC Sec. 453(c) referred to as installment receivables until 01/01/95. This regulation refers only to tax years beginning before 01/01/95.