What Services Are Exempt from Sales Tax in Arkansas in 2025?

Overview of Sales Tax Rules in Arkansas for Businesses

Understanding the sales tax structure in Arkansas is essential for businesses to comply with state and local tax regulations. This section covers the tax structure and nexus requirements to help businesses navigate their obligations effectively.

Arkansas Sales Tax Structure for Businesses

Arkansas imposes a statewide sales tax rate of 6.5%, with additional local taxes that can raise the total combined rate to 11.625%, depending on the municipality. This layered tax system directly impacts businesses operating across different regions within the state.

Destination-Based Tax System

Arkansas operates as a destination-based tax state, meaning sales tax is calculated based on the buyer’s location rather than the seller’s. For example, a business in Little Rock making a sale to a customer in Fayetteville must apply the applicable sales tax rate in Fayetteville, not Little Rock.

Key Tax Details	Rate/Rule
Statewide Sales Tax Rate	6.5%
Maximum Combined Rate	11.625%
Tax Basis	Destination-based (buyer’s location)

Example Scenario Applying Destination-Based Tax

A business in Bentonville sells $2,000 worth of taxable goods to a customer in Jonesboro. The combined sales tax rate in Jonesboro is 8.5%, so the business collects:

• Tax = $2,000 x 8.5% = $170
• Total Collected = $2,170

Nexus Requirements for Arkansas Sales Tax Compliance

Nexus refers to the connection between a business and a state that triggers a tax obligation. In Arkansas, both economic nexus and physical nexus can establish this requirement.

Economic Nexus

Arkansas enforces economic nexus for remote sellers meeting the following thresholds:

• $100,000 in sales annually, or
• 200 separate transactions annually with Arkansas customers.

Once these thresholds are met, businesses must register with the Arkansas Department of Finance and Administration and begin collecting sales tax.

Physical Nexus

Physical presence, such as having an office, warehouse, or employees in Arkansas, automatically establishes nexus. For example, a business storing inventory in an Arkansas warehouse must collect and remit sales tax on all taxable transactions within the state.

Example Scenario Nexus Compliance

A Texas-based eCommerce retailer sells $150,000 worth of tangible personal property to Arkansas customers within a year. Because the sales exceed the $100,000 threshold, the retailer must register for a sales tax permit and collect tax on Arkansas sales.

To ensure compliance, businesses can refer to the Arkansas Sales and Use Tax Overview and Sales Tax Exemptions: What You Need to Know.

What Services Are Exempt from Sales Tax in Arkansas for Businesses?

Understanding Arkansas sales tax exemptions for businesses is crucial, as Arkansas provides various exemptions from sales tax, helping businesses reduce costs and simplify compliance. Understanding which services and items qualify for exemptions is crucial for business owners to optimize their tax strategies.

General Rule for Arkansas Tax Exempt Services

In Arkansas, services are generally not subject to sales tax unless explicitly listed as taxable. This exemption framework is beneficial for service-based businesses, allowing them to operate without the added complexity of collecting sales tax on most transactions.

Common Tax-Exempt Services for Businesses in Arkansas

Several categories of services are exempt from Arkansas sales tax, providing significant cost savings for specific industries.

Professional Services

• Includes legal, accounting, consulting, and other advisory services.
• For example, an accounting firm providing tax preparation services does not charge sales tax to its Arkansas clients.

Medical Services

• Covers physician services, diagnostic testing, and hospital care.
• Medical procedures, such as surgeries or physical therapy, are fully exempt.

Nonprofit Services

• Services provided by nonprofit organizations, such as community outreach programs, are exempt.

Educational Services

• Private tutoring, training programs, and certification courses are exempt.

Sewer Services

• Specifically exempt under Arkansas law, this category ensures affordability for essential services.

Example Scenario Recognizing Tax-Exempt Services

A consulting firm in Little Rock provides $10,000 worth of business strategy services to a local client. Since professional consulting services are tax-exempt in Arkansas, the firm does not need to collect sales tax on this transaction.

Learn more about service exemptions at the Arkansas Sales and Use Tax Guide.

What Items Are Tax Exempt in Arkansas?

Arkansas also exempts several tangible personal property items from sales tax, benefiting industries such as retail, agriculture, and manufacturing. Examples of exempt items include:

• Clothing for Resale: Apparel purchased by retailers for resale is exempt from sales tax.
• Manufacturing Equipment: Machines and tools directly used in the manufacturing process.
• Agricultural Supplies: Items such as feed, seed, and fertilizer are tax-exempt for qualifying farmers.

For detailed examples of exempt items, consult the Arkansas Sales Tax Exemptions.

Do You Pay Sales Tax on Services in Arkansas?

In general, most services in Arkansas are not taxable, unless they fall under specific categories such as:

• Personal Services: Cleaning, landscaping, and pest control.
• Repair Services: Auto repair and appliance servicing.

This general rule ensures that businesses providing non-taxable services can avoid the administrative burden of collecting and remitting sales tax, a concept further supported by initiatives like the streamlined sales tax.

Example Scenario Taxable Services in Arkansas

A landscaping company provides $5,000 worth of services to a residential client in Fayetteville. Since landscaping is a taxable service in Arkansas, the company must collect the applicable sales tax rate.

For additional guidance on service taxability, visit the Arkansas Sales and Use Tax FAQs.

Understanding Taxable Services in Arkansas

While many services in Arkansas are exempt from sales tax, certain categories are taxable. Businesses must be aware of these taxable services to comply with state regulations and ensure proper tax collection.

Taxable Services in Arkansas for Businesses

Certain service categories in Arkansas are subject to sales tax. The following table summarizes these categories, examples, and key details:

Service Category	Examples	Details
Repairs and Maintenance	Auto repair, appliance servicing, HVAC maintenance	Businesses must apply sales tax on labor and any parts sold during the repair.
Personal Services	Cleaning, pest control, landscaping	A pest control company performing a one-time treatment for $300 must include the applicable sales tax.
Digital Services	Streaming subscriptions, digital advertising, software-as-a-service (SaaS)	A business offering a $20 monthly subscription to a digital streaming service must collect tax based on the subscriber’s location.

Example Scenario Taxable Personal Services

A Fayetteville-based cleaning service charges a customer $500 for a deep cleaning. With the local tax rate at 9.75%, the business collects:

• Tax = $500 x 9.75% = $48.75
• Total Charged = $548.75

For more details on taxable services, refer to the Arkansas Sales and Use Tax FAQs.

Mixed Services and Goods Under Arkansas Sales Tax Rules

When taxable goods and services are bundled together, the entire transaction may be subject to sales tax. Businesses must carefully distinguish between the taxable and non-taxable components of their offerings.

Examples of Bundled Transactions:

• An appliance repair company charges $150 for labor and $50 for replacement parts. Since the parts are taxable, sales tax applies to the entire $200 transaction.
• A florist offering a $100 arrangement with a $20 delivery fee must apply sales tax to both the arrangement and delivery, as they are part of a single bundled transaction.

Are Handyman Services Taxable in Arkansas?

Handyman services in Arkansas are generally taxable if they involve repairs or maintenance on tangible personal property. For instance:

• Fixing a broken cabinet or repairing a leaky faucet is subject to sales tax.
• However, purely labor-based services, such as consultation without physical repairs, may not be taxable.

Example Scenario Handyman Services

A handyman charges $250 to repair a door and replace its hardware. With the local tax rate at 8.5%, the total sales tax collected is:

• Tax = $250 x 8.5% = $21.25
• Total Charged = $271.25

Businesses offering repair or maintenance services should consult the Arkansas Sales Tax Guide for further guidance on classifying taxable activities.

How Understanding Sales Tax Exemptions Can Benefit Your Business in Arkansas

Sales tax exemptions in Arkansas can provide businesses with significant advantages, from cost savings to improved compliance processes. Leveraging these exemptions can enhance operational efficiency and create competitive advantages in the marketplace.

Cost Savings from Arkansas Tax Exemptions for Businesses

Sales tax exemptions help reduce expenses for businesses that qualify. For example, companies offering professional services, such as consulting or legal work, can operate without the added cost of collecting or remitting sales tax.

Example Scenario Reduced Costs Through Exemptions

A nonprofit organization spends $50,000 annually on exempt services such as consulting and educational programs. With an average sales tax rate of 8.5%, the organization saves $4,250 annually by not being subject to sales tax.

These savings enable businesses to reinvest in growth opportunities, such as hiring staff, increasing income, or expanding their services.

Simplified Compliance with Arkansas Sales Tax Rules

Exempt services come with fewer tax reporting requirements, simplifying compliance for businesses. Without the need to track taxable transactions or remit collected taxes, businesses can reduce administrative burdens and focus on core operations.

Key Compliance Benefits:

• No need to maintain detailed sales tax records for exempt transactions.
• Fewer filings and lower risk of audit penalties.

Competitive Advantage with Arkansas Sales Tax Exemptions

Businesses offering exempt services can attract customers by passing on savings from the absence of sales tax. These cost advantages are especially impactful in price-sensitive industries.

Example Scenario Competitive Pricing with Exempt Services

A consulting firm provides tax-exempt services for $10,000. A competing firm that must charge 8% sales tax would need to collect $800 more, making the exempt provider the more affordable option.

By utilizing exemptions strategically, businesses can enhance customer satisfaction while maintaining profitability.

Staying Compliant with Arkansas Sales Tax Exemption Rules

To maximize the benefits of sales tax exemptions and avoid penalties, businesses must adhere to Arkansas’s tax compliance rules. This involves proper classification, documentation, and staying informed about tax regulation updates.

Proper Classification of Services for Arkansas Tax Compliance

Accurate classification of taxable and exempt services is critical for compliance. Misclassifications of tangible personal property can also lead to penalties, audits, or missed opportunities to claim valid exemptions.

• Taxable Services: Include personal, repair, and maintenance services explicitly listed under Arkansas law.
• Exempt Services: Professional, medical, and educational services generally qualify for exemptions.

How to Determine If Your Business Services Are Exempt from Sales Tax

To verify whether a service is taxable or exempt:

• Consult the Arkansas Department of Finance and Administration’s (DFA) list of taxable and exempt services.
• Review relevant tax guides and FAQs for clarification.

For more information, visit the Arkansas Sales and Use Tax FAQs.

Managing Arkansas Sales Tax Exemption Certificates

Exemption certificates play a vital role in proving eligibility for tax exemptions. Businesses should:

• Collect Certificates: Obtain valid exemption certificates from qualifying customers or entities at the time of sale.
• Verify Details: Ensure all necessary information is complete and accurate.
• Organize Records: Store certificates securely for easy access during audits.

Example Scenario Certificate Management

A nonprofit organization purchasing $15,000 worth of goods provides a valid exemption certificate. By retaining the certificate, the seller avoids liability for uncollected sales tax during an audit.

Learn how to manage certificates effectively at How to Obtain a Sales Tax Exemption Certificate.

Record-Keeping and Audit Preparation for Arkansas Businesses

Detailed records are essential for compliance and audit preparedness. Recommended practices include:

• Maintaining organized records of all exempt transactions.
• Periodically reviewing exemption certificates for accuracy and validity.
• Retaining documents for at least three years or as required by law.

Automate Your Exemptions for Services with Kintsugi

Kintsugi simplifies Arkansas sales tax compliance by automating exemption management, including handling Arkansas tax exempt services for companies, reducing errors, and saving time for businesses.

Benefits of Automation for Arkansas Sales Tax Compliance

Automation tools streamline critical compliance tasks:

• Track Exempt Transactions: Monitor and report taxable and exempt sales in real time.
• Simplify Certificate Management: Validate, store, and organize exemption certificates with automated reminders for renewals.

Example Scenario

A wholesale distributor selling $50,000 annually to tax-exempt organizations uses Kintsugi to validate and store exemption certificates, ensuring audit-ready records.

Streamlining Arkansas Sales Tax Compliance with Kintsugi

Kintsugi provides tools to simplify compliance:

• Real-Time Tax Calculations: Automatically apply correct rates for Arkansas’s destination-based tax system.
• Automated Reporting: Generate detailed, error-free reports for filings.

For more on how Kintsugi supports compliance, visit the Arkansas Sales Tax Guide.