Arkansas — Corporate Income / Franchise Tax

Arkansas imposes an annual corporate income tax on two categories of corporations. Every corporation organized under the laws of Arkansas must pay income tax on its entire net income received during the income year. Foreign corporations doing business within Arkansas must pay income tax on the proportion of their entire net income apportioned to Arkansas. The tax applies to C corporations; S corporations follow separate filing requirements and are not subject to the C corporation income tax regime. The Arkansas Department of Finance and Administration administers corporate income tax through its Corporation Income Tax Section.

Source: Corporation Income Tax, Arkansas DFA

Arkansas imposes a graduated corporate income tax on net income for tax years beginning on or after January 1, 2024. The rate structure applies to both domestic corporations (those organized under Arkansas law) and foreign corporations (those doing business in Arkansas on their apportioned income).

Tax years beginning January 1, 2024 through December 31, 2026. The brackets are: 1.0% on the first $3,000 of net income; 2.0% on the next $3,000 of net income (between $3,001 and $6,000); 3.0% on the next $5,000 of net income (between $6,001 and $11,000); and 4.3% on all net income exceeding $11,000. Act 1 (SB1) and Act 4 (HB1001) of the Second Extraordinary Session of 2024 reduced the top rate from the prior 4.8% to 4.3%, effective for tax years beginning on or after January 1, 2024.

Tax years beginning on or after January 1, 2027. The top corporate income tax rate will be reduced from 4.3% to 4.1% for all net income exceeding $11,000. The lower brackets (1.0%, 2.0%, and 3.0%) remain unchanged. Act 1 (HB1001) of the First Extraordinary Session of 2026, signed by Governor Sarah Huckabee Sanders on May 6, 2026, enacted this rate reduction. According to the Arkansas Department of Finance and Administration's fiscal impact statement, this reduction will decrease general revenues by $12.7 million in fiscal year 2027 and $25.4 million in fiscal year 2028 and thereafter.

Source: Corporate FAQs, Arkansas DFA

Source: HB1001 Fiscal Impact Statement, Arkansas DFA

For tax years beginning on or after January 1, 2021, Arkansas requires all taxpayers with income from sources both within and without the state to use a single sales factor to apportion business income. The apportionment formula is a fraction: the numerator is total sales of the taxpayer in Arkansas during the tax period, and the denominator is total sales of the taxpayer everywhere during the tax period. Act 822 of 2019 amended Arkansas Code Annotated §§ 26-5-101, Article IV, and 26-51-709 through 26-51-718 to adopt this single sales factor method, replacing the prior multi-factor formula.

Source: Corporate FAQs, Arkansas DFA

Effective January 1, 2026, Arkansas established a corporate economic nexus threshold of $250,000 in gross receipts for nonresident corporations or partnerships with no physical presence in the state. Act 719 of 2025 amended Arkansas Code § 26-51-202 to create this bright-line standard. A nonresident corporation or partnership with Arkansas receipts of at least $250,000 in the current or preceding year is subject to income tax, regardless of physical presence. Nonresident corporations with physical presence in Arkansas engaging in unprotected activities establish nexus even below the $250,000 threshold, subject to Public Law 86-272 limitations.

Source: Corporate FAQs, Arkansas DFA

Arkansas corporations must file income tax returns on or before the 15th day of the fourth month following the close of the tax year. Calendar-year filers must file by April 15; fiscal-year filers by the 15th day of the fourth month after year-end. This deadline applies to both domestic corporations organized under Arkansas law and foreign corporations doing business in Arkansas that file Form AR1100CT. Arkansas Code Annotated § 26-51-806 sets this deadline. Payment of any tax due must be made by this original due date to avoid interest and penalties, even if an extension to file is granted.

Source: Corporate FAQs, Arkansas DFA

Arkansas grants corporations automatic extensions to file income tax returns when a federal extension has been filed, but payment of any tax due remains due on the original deadline to avoid interest and penalties.

Federal automatic extension recognition. Arkansas Code Annotated § 26-51-807 states that any person who requests an automatic extension of time for filing a federal income tax return will be granted an extension of time for filing the corresponding Arkansas income tax return until the extended due date of the federal return. A corporation that files federal Form 7004 with the IRS for an automatic extension receives an extension for its Arkansas corporate income tax return (Form AR1100CT). According to the Arkansas Department of Finance and Administration, a copy of federal Form 7004 is no longer required to be attached to the Arkansas return if the Federal Extension box is checked on Form AR1100CT.

Extended Arkansas deadline — one month beyond federal extension. For tax years beginning on or after January 1, 2021, Act 629 of 2021 amended Arkansas Code Annotated § 26-51-807(a) to allow taxpayers an extension to file of one month after the extended due date for a federal income tax return. For a calendar-year C corporation with a federal Form 7004 extending the federal deadline from April 15 to October 15, the Arkansas extended deadline is November 15 (one month after the federal extended due date). The one-month extended due date does not apply to returns for which a federal extension is not requested and does not extend the original due date for payment.

Additional Arkansas extension beyond federal extension. Arkansas Code Annotated § 26-18-505 states that, for good cause and upon written request, an Arkansas extension of 60 days beyond the automatic federal extension due date will be granted. A corporation seeking this additional extension must complete and mail Arkansas Form AR1155 (Request for Extension of Time for Filing Income Tax Returns) by the federal extended due date to the Corporation Income Tax Section. The Arkansas extension request must be postmarked on or before the Arkansas return due date or the federal extended return due date, whichever is applicable. Arkansas extensions must be attached to the Arkansas income tax return when filed.

Payment requirement and consequences of late payment. An extension of time to file does not extend the time to pay tax due. To avoid interest and penalty, any tax due payment must be made on or before the 15th day of the fourth month following the close of the corporation's tax year (April 15 for calendar-year corporations). According to the Department of Finance and Administration, interest at the rate of 10% per annum is due on all returns (including those with extensions) if the tax is not paid by the original return due date. Interest is computed on a daily rate of 0.00027397 (0.027397%). Failure to pay penalties at 5% per month will be assessed on all taxes unpaid after the original due date. Any tax due balance remaining after the original Arkansas return due date or the extended return due date will be subject to the penalties referenced in Arkansas Code Annotated § 26-18-208.

Source: Corporate FAQs, Arkansas DFA

Effective for tax years beginning on or after January 1, 2026, Arkansas applies different sourcing rules depending on the type of receipt. Act 719 of 2025 modernized Arkansas's apportionment framework by adopting market-based sourcing for certain receipts while retaining destination-based sourcing for tangible personal property sales.

Tangible personal property. Receipts from sales of tangible personal property are sourced to Arkansas if the property is delivered or shipped to a purchaser within Arkansas, regardless of the f.o.b. point or other conditions of sale. This destination-based rule applies to physical goods delivered into the state.

Services. Receipts from sales of services are sourced to Arkansas based on market-based sourcing principles—specifically, to the extent the services are delivered to a location in Arkansas. Prior to January 1, 2026, Arkansas sourced service receipts using the cost-of-performance method, which assigned receipts based on where the income-producing activity occurred measured by costs of performance. The shift to market-based sourcing aligns Arkansas with the majority of states imposing corporate income tax and follows the 2014 amendments to the Multistate Tax Compact.

Intangible property. Receipts from the rental, lease, licensing, or sale of intangible property are sourced to Arkansas to the extent the intangible property is used in Arkansas. The determination of where intangible property is "used" depends on the nature of the intangible and is generally tied to the location of the customer's benefit or use.

Telecommunications election. Providers of telecommunications service, internet access service, cable television service, community antenna television service, direct-to-home satellite television programming service, or a combination of these services may elect to continue using the cost-of-performance sourcing method for receipts from sales other than tangible personal property through December 31, 2035. This election is made on the taxpayer's return for the first tax year the taxpayer is eligible and, once made, cannot be changed for subsequent years without written approval from the Arkansas Department of Finance and Administration.

Throw-out rule. If Arkansas's sourcing rules assign receipts from the sale of services or the rental, lease, licensing, or sale of intangibles to a state where the taxpayer is not taxable, or if the state of assignment cannot be determined or reasonably approximated, the receipts must be excluded from both the numerator and the denominator of the sales factor. This throw-out rule differs from a traditional throwback rule, which would include such receipts in the numerator; under a throw-out rule, the receipts disappear from the apportionment calculation entirely.

Terminology changes. Act 719 also replaced statutory references to "business income" with "apportionable income" and "sales factor" with "receipts factor," conforming Arkansas law to the revised Multistate Tax Compact terminology. These changes do not alter the substantive apportionment methodology but modernize the statutory language.

Source: Act 719 of 2025, Arkansas State Legislature

Source: Corporate FAQs, Arkansas DFA

Arkansas imposes an annual franchise tax on corporations, limited liability companies, banks, and insurance companies registered in Arkansas. Arkansas Code Annotated § 26-54-101 et seq., known as the Arkansas Corporate Franchise Tax Act of 1979, requires all such entities—both domestic (organized under Arkansas law) and foreign (organized elsewhere but authorized to do business in Arkansas)—to pay the annual franchise tax. The Arkansas Secretary of State administers the franchise tax. The franchise tax is in addition to any corporate income tax liability payable to the Department of Finance and Administration.

Who must file. All corporations, LLCs, banks, and insurance companies registered in Arkansas must pay the annual franchise tax. This includes domestic and foreign for-profit corporations (both stock and non-stock), limited liability companies, professional limited liability companies, banks, and insurance companies. Nonprofit organizations exempt from federal income tax, as well as those formed under the Uniform Partnership Act, are exempt from franchise tax. LPs, LLPs, and LLLPs must file annual reports but do not pay franchise tax.

Tax rates as of 2024-2025.

• LLCs/PLLCs: $150 flat annual fee.
• Corporations without authorized capital stock: $300 flat annual fee.
• Stock corporations (general rule): 0.3% (three-tenths of one percent) of the apportioned par value of outstanding capital stock, with a statutory minimum tax of $150.
• Insurance companies: Fixed amounts as prescribed by statute (e.g., $300 or $400 depending on capital stock/assets).
• Mortgage loan corporations: 0.3% of apportioned value of capital stock, minimum $300.
• Corporations in liquidation: The lesser of the normal stock corporation franchise tax or 0.3% of Arkansas real and tangible property, minimum $150.

Material change for 2026 forward

• For tax years beginning on or after January 1, 2026, Act 256 of 2025 (SB256) amends Ark. Code Ann. § 26-54-104(a)(6)(B) to reduce the minimum franchise tax from $150 to $100 for corporations otherwise subject to the $150 minimum (primarily corporations with capital stock).
• All other thresholds, rates, and minimums remain unchanged.

Filing deadline and administration. The annual franchise tax must be reported and paid by May 1 for most filers, beginning the year after formation or qualifying to do business in Arkansas. File with the Arkansas Secretary of State (online or by mail). Late payment incurs a $35 fee plus 10% annual interest, capped at double the original amount due. Failure to pay can result in loss of corporate status and continued accrual of liability until formal withdrawal or dissolution.

Relationship to corporate income tax. Franchise tax is a privilege tax for existing or doing business in Arkansas, separate from the corporate income tax.

Source: Ark. Code Ann. § 26-54-104

Source: Franchise Tax / Annual Report Forms, Arkansas Secretary of State

Source: SB256 Fiscal Impact Statement, Arkansas State Legislature (2025)

Arkansas corporations must make quarterly estimated income tax payments if the estimated tax liability exceeds $1,000 for the tax year. Every corporation subject to Arkansas income tax must file a declaration of estimated tax with the Department of Finance and Administration if it can reasonably expect the estimated tax to exceed this threshold.

Payment timing and installment structure. The Arkansas Department of Finance and Administration Corporate FAQs state that estimated tax payments for C corporations are due on the following schedule for tax years beginning on or after January 1, 2003:

• First installment (Voucher 1): due on or before the 15th day of the fourth month of the tax year.
• Second installment (Voucher 2): due on or before the 15th day of the sixth month of the tax year.
• Third installment (Voucher 3): due on or before the 15th day of the ninth month of the tax year.
• Fourth installment (Voucher 4): due on or before the 15th day of the last month of the tax year.

For a calendar-year corporation, these due dates are April 15, June 15, September 15, and December 15. Fiscal-year corporations must use the corresponding dates relative to their fiscal year. These dates differ from the federal corporate estimated tax schedule; the fourth Arkansas installment is due in the last month of the tax year (December for calendar-year filers), whereas the fourth federal installment is due in the twelfth month (generally one month earlier for the calendar year).

Electronic funds transfer requirement. Arkansas law requires any corporation with an estimated quarterly income tax liability equal to or greater than $20,000 to pay its estimated quarterly income tax by the Electronic Funds Transfer (EFT) method. The Corporation Income Tax Section determines which corporations must remit estimated payments through EFT based on the corporation's average quarterly tax liability for the prior tax year. A corporation may voluntarily participate in the EFT payment method using the Arkansas Taxpayer Access Point (ATAP) website at www.atap.arkansas.gov. Corporations with quarterly estimated liability below $20,000 may elect to pay by EFT or may use Form AR1100ESCT payment vouchers submitted by mail or in person. A corporation authorized to file and pay estimated quarterly income tax payments through EFT does not need to mail paper estimated vouchers to the Corporation Income Tax Section. Failure to remit estimated tax by EFT when required results in a 5% penalty based on the amount of taxes due, in addition to any other penalty authorized under Arkansas law.

Underpayment penalty and safe harbors. Arkansas imposes a penalty on corporations that fail to pay estimated tax in an amount equal to at least 90% of the amount actually due on any quarterly due date. The penalty is 10% per annum on the amount of the underestimate, applied on a quarterly basis. According to the DFA Corporate FAQs, the underpayment penalty shall not be imposed if:

• The tax liability for the current tax year is $1,000 or less;
• Current-year payments made equal or exceed 90% of the current year's tax liability;
• Current-year payments equal or exceed 100% of the prior year's tax liability (provided the prior year was a full 12-month year and the taxpayer filed an Arkansas return showing a tax liability); or
• The taxpayer had no tax liability for the preceding tax year, the preceding tax year was a full 12 months, and the taxpayer was domiciled in Arkansas throughout the preceding tax year.

The underpayment penalty is calculated by multiplying the underpayment for each quarter by 0.00027397 (the daily rate equivalent of 10% per annum), then multiplying this product by the number of days from the date the estimate payment was due until the date payment is actually made, or until the original return due date, whichever is earlier. The penalty may be waived if the Commissioner determines that because of casualty, disaster, or other unusual circumstances the imposition of the penalty would be against equity and good conscience, or if the taxpayer retired after age 62 or became disabled and the underpayment was due to reasonable cause and not willful neglect.

Relationship to annual return and extensions. Estimated tax payments reduce the balance due when the annual corporate income tax return (Form AR1100CT) is filed. To avoid interest and penalty, any tax due payment must be made on or before the 15th day of the fourth month following the close of the corporation's tax year, even if the corporation has filed an extension to file the return. Interest at 10% per annum is due on all returns (including those with extensions) if the tax is not paid by the original return due date. Interest is computed on a daily rate of 0.00027397 (0.027397%). Failure-to-pay penalties at 5% per month will be assessed on all taxes unpaid after the original due date. An extension of time to file does not extend the time to pay; corporations must estimate and pay any remaining tax liability by the original due date to avoid interest and penalties.

Source: Corporate FAQs, Arkansas Department of Finance and Administration

Source: AR1100ESCT Corporation Estimated Tax Vouchers 2024, Arkansas Department of Finance and Administration

Arkansas does not require or permit mandatory unitary combined reporting for corporate income tax purposes. Instead, Arkansas permits—but does not require—certain affiliated corporate groups to elect to file a consolidated Arkansas corporation income tax return. This regime is governed by Ark. Code Ann. § 26-51-805 and Arkansas DFA Regulation 1998-1 (Rule 26-51-805).

Consolidated return election:

• An "affiliated group of corporations" may elect to file a consolidated Arkansas income tax return only if the group files a consolidated federal return under IRC § 1501. The election must be made in writing on or before the due date (including extensions) for filing the Arkansas return.
• Once made, the consolidated election is binding for all subsequent years unless the Commissioner of Revenue grants approval to revoke or modify the election.
• Only entities subject to Arkansas corporate income tax and included in the federal consolidated group may be included. Entities not taxed as corporations, or not subject to Arkansas income tax, are excluded.
• The group’s computation of taxable income, allocation, and apportionment procedures are set by DFA regulations.

No combined (unitary) reporting: Arkansas law does not provide for, and Arkansas does not allow or require, mandatory or elective unitary combined reporting for multistate/groups on a unitary business basis. While "combined report" is referenced in Arkansas Code § 26-51-817 in the context of certain apportionment and allocation changes, Arkansas has not adopted a combined reporting regime (as used in California, New York, or other unitary states). The only alternative to separate filing is the elective federal-style consolidated return under § 26-51-805.

Sources: Source: Arkansas Code § 26-51-805 (Consolidated returns) Source: Arkansas DFA Regulation 1998-1 (Rule 26-51-805) Source: DFA Corporate Income Tax overview

Human confirmation: Not yet human confirmed.

Arkansas permits corporations to carry forward net operating losses (NOLs), but carrybacks are not allowed in any tax year. The carryforward period depends on when the loss was incurred, and special provisions apply to certain industries and following mergers or ownership changes.

Carryback prohibition: Arkansas law expressly disallows all carrybacks of net operating losses for corporate income tax purposes. This strict prohibition applies regardless of the loss year.

Carryforward periods:

• Tax years beginning before January 1, 1987: NOLs may be carried forward for up to 3 tax years.
• Tax years beginning January 1, 1987 through December 31, 2019: 5-year carryforward.
• Tax year beginning January 1, 2020: 8-year carryforward.
• Tax years beginning on or after January 1, 2021: 10-year carryforward.
• Qualified medical companies: up to 15-year carryforward for NOLs, as defined by statute.

(Carryforward rules: Ark. Code Ann. § 26-51-427(1)(A)-(C), (E)).

Mergers and ownership changes: When a corporation acquires another, Arkansas allows the successor to use the predecessor's NOL carryforwards only if certain requirements are met:

• At least 80% of the voting power (exclusive of directors' qualifying shares) must be commonly owned, or the acquirer already owned 80% or more of the acquired corporation before the merger.
• The post-merger income generated by the acquired assets must be sufficient to utilize the NOL carryover during the applicable carryforward period.

(NOL successor rules: Ark. Code Ann. § 26-51-427(3)(D), incorporating (1)(A)-(C) periods).

Consolidated returns and NOLs: In consolidated Arkansas returns, NOLs must be allocated between group members according to specific regulatory rules:

• Losses arising in separate return limitation years (SRLY) are limited to the income of that member only.
• When a group member leaves the group, it can take any remaining apportioned NOL with it, usable only on its own separate Arkansas return.
• The portion of consolidated NOLs is determined by each member's relative share of the loss year.

(Consolidated NOLs: CAR § 130-147, implementing Ark. Code Ann. § 26-51-805(f)).

Source: Ark. Code Ann. § 26-51-427 Source: Arkansas DFA, Rule 1998-1 § 130-147

Human confirmation: Not yet human confirmed.

Arkansas provides a suite of corporate income tax credits and targeted incentives governed principally by the Consolidated Incentive Act of 2003, Ark. Code Ann. §§ 15-4-2701 et seq., with significant amendments by Act 881 of 2025 (HB 1922) effective for tax years beginning January 1, 2026. This update details new credits, repealed incentives, and changed eligibility mechanics, closely citing statutory provisions as amended.

1. Investment Tax Credit (Ark. Code Ann. § 15-4-2706, as amended by Act 881):

• For approved projects, eligible businesses may claim a credit of up to 10% of qualifying project costs. Section 2 of Act 881 modifies Ark. Code Ann. § 15-4-2706(b)(1) and (b)(2).
• Effective for projects approved on/after Jan. 1, 2026, the credit may be used to offset either Arkansas corporate income tax or Arkansas sales/use tax liability at the taxpayer's annual election (§ 15-4-2706(e) as amended; Act 881 § 4). Prior law restricted use to income tax only.
• Credits are nonrefundable, may not be sold or transferred, and must be claimed per AEDC agreement (§ 15-4-2706(d)). Unused credits may be carried forward for up to nine years (§ 15-4-2706(c)). Annualized credit claim, project thresholds, and eligibility limits are detailed in § 15-4-2706(b)-(e) and AEDC rules.

2. Headquarters Relocation Credit (New, Act 881 §§ 11-14):

• Available for tax years beginning Jan. 1, 2026, for qualifying taxpayers relocating corporate headquarters from outside Arkansas (§ 13, Act 881; new § 15-4-2760 et seq.).
• The credit equals 50% of the aggregate payroll for new, full-time permanent HQ employees, phased out over a 10-year schedule (§ 15-4-2760(b)-(d)). To qualify, a company must meet specific minimum job and wage requirements, which are tiered by county as set by AEDC and codified in Act 881 § 14. For most projects: at least 25 new HQ jobs; higher tiers may require 50+ jobs or jobs with average wage ≥110% of county/state average wage.
• Claw-back: Failure to maintain minimum payroll triggers credit recapture (§ 15-4-2761).
• Details and application procedures in Act 881 §§ 11-14.

3. Research & Development (R&D), Equipment Donation Credits:

• R&D Credits: (Ark. Code Ann. § 15-4-2708)
• (a) & (c): 33% of qualified research expenditures with Arkansas colleges/universities or for targeted businesses, up to limits set by § 15-4-2708(a)(2)-(3), (c)(2)-(3). Credits subject to AEDC approval; carryforward up to nine years (§ 15-4-2708(g)-(h)).
• (b): In-house business R&D: up to 10% (higher rate for certain expansions allowed), but Act 881 repeals “technology-based enterprise” R&D credits as of 2026 (§ 54, Act 881; see below).
• Equipment Donation/Sale Credit: (Ark. Code Ann. § 26-51-1102). Credit of 33% of value for certain machinery/equipment donated or sold below cost to Arkansas educational institutions per § 26-51-1102(a)-(c); carries forward nine years. Donation/sale certification via AEDC required per § 26-51-1102(d).

4. Repealed Credits/Transition (Act 881 §§ 46-60):

• Act 881 repeals technology-based enterprise credits under former §§ 15-4-2708(b), (f), and related sections, effective Jan. 1, 2026 (see § 54, Act 881). Transitional/sunset provisions for existing credit holders appear in Act 881 § 57; taxpayers with projects approved prior to Jan. 1, 2026, should review these provisions for grandfathering/phase-out.

5. Lithium Industry Sales/Use Tax Exemption (Act 1012, eff. Oct. 1, 2025):

• Exempts state sales and use tax on machinery, equipment, and materials used directly in construction or expansion of qualifying lithium industrial projects. See § 2, Act 1012 of 2025, codified at Ark. Code Ann. § 26-52-447, § 26-53-149.

6. Combination Limits, Application, and Administration:

• Limits on combining credits: Ark. Code Ann. § 15-4-2712 as amended—e.g., jobs credit (Advantage Arkansas) and investment credits cannot be claimed for the same project costs; sales/use tax refunds generally cannot be combined with income tax credits for the same project.
• Application, annual certification, and reporting: Required through AEDC and subject to annual state program funding caps (§ 15-4-2706(i); specific caps and limits set annually).
• All credits are nonrefundable unless specifically authorized; statutory nine-year carryforward applies unless otherwise limited by project agreement or superseding sunset (§ 15-4-2706(c); § 15-4-2708(g)-(h); Act 881 §§ 4-5).

Primary sources follow. The 2026 changes are governed by the cited Acts and their codified amendments; all details above are directly sourced to the cited statutory subsections. Confirm project agreement language and AEDC annual limits on a case-by-case basis.

Source: Act 881 of 2025 (HB 1922) Source: Ark. Code Ann. § 15-4-2706 Source: Ark. Code Ann. § 26-51-1102 Source: Act 1012 of 2025 (SB 568) Source: Ark. Code Ann. § 15-4-2712

Not yet human confirmed. Section reflects statutory amendments effective for 2026 forward. Review Act 881 and AEDC guidelines for granular project eligibility, annual funding limits, and transition/phaseout provisions as program rules are finalized.

Arkansas corporate income tax conforms to selected sections of the Internal Revenue Code (IRC) on a static, not rolling, basis; conformity is determined primarily by Arkansas Code Annotated § 26-51-428(a) and references in Department of Finance and Administration (DFA) forms and instructions.

Bonus depreciation (IRC § 168(k)). Arkansas expressly decouples from federal bonus depreciation. State law adopts IRC §§ 167 and 168(a)–(j) as in effect on January 1, 2019, and § 179 as in effect on January 1, 2009, for tax years beginning January 1, 2014 or later. IRC § 168(k) (bonus depreciation) is excluded by statute, so any federal bonus depreciation claimed must be added back for Arkansas purposes. This requirement is confirmed by both the statute and current DFA forms and instructions.

Source: Ark. Code Ann. § 26-51-428(a) Source: AR1100REC Corporate Reconciliation Schedule (2024) Source: AR1100ADJ Form Instructions (2024)

Interest expense limitation (IRC § 163(j)). Arkansas’s governing statute and published forms do not address the interest expense limitation under federal IRC § 163(j). There is no direct statutory reference to IRC § 163(j) in Ark. Code Ann. § 26-51-428, nor is a conformity or decoupling position disclosed in official Arkansas reconciliation or adjustment schedules as of June 16, 2026. Practitioners should review current year Arkansas law for possible future developments on this point.

Research and experimental (R&E) expenses (IRC § 174). As of June 16, 2026, there is no confirmation in Arkansas statute, regulation, form instructions, or other official guidance regarding the state’s treatment of IRC § 174 capitalization and amortization for corporate income tax purposes.

Source: Ark. Code Ann. § 26-51-428(a) Source: AR1100REC Corporate Reconciliation Schedule (2024) Source: AR1100ADJ Form Instructions (2024)

Human confirmation: Not yet human confirmed.

Arkansas recognizes federal S corporation elections: a corporation treated as an S corporation for federal purposes will generally be treated the same for Arkansas income tax under Department of Finance & Administration (DFA) rules. S corporations themselves are not subject to Arkansas corporate income tax at the entity level (per 1-26 Ark. Code R. 51-409(c)(1) and AR1100S instructions). Instead, all income, deductions, and credits flow through to shareholders, who report them on their own Arkansas income or corporate returns. The S corporation must file Form AR1100S annually, reporting Arkansas-source items to DFA. Filings are due on or before the 15th day of the fourth month after year-end (AR1100S Instructions p. 1).

Franchise tax obligation: Even while exempt from corporate income tax, S corporations must pay Arkansas franchise tax annually to the Secretary of State, similar to C corporations. Franchise tax is governed by Ark. Code Ann. § 26-54-104 (see the separate 'Franchise tax requirements and rates' section and the Arkansas Secretary of State).

Nonresident shareholder withholding and composite returns:

• If a nonresident individual or entity is a shareholder, the S corporation must withhold Arkansas income tax on the shareholder's distributive share of Arkansas-source income. This withholding is mandatory unless (1) the shareholder elects to be included in the composite return (Form AR1000CR) or (2) the shareholder provides a signed agreement to file Arkansas tax directly (§ 26 CAR 63-103, AR1100S instructions p. 2-3).
• Withholding rate: The entity must withhold at the highest Arkansas individual tax rate in effect for the taxable year (§ 26 CAR 63-103(A), AR1100S instructions p. 2).
• Composite filing: S corporations may include eligible nonresident shareholders on a composite return (Form AR1000CR) in lieu of separate returns by those shareholders, but only if the shareholder has no other Arkansas-source income (AR1100S instructions p. 3).
• Withholding remittance: Amounts withheld for nonresident shareholders are reported and remitted using Form AR941PT, due quarterly and at year-end. Filings may be made through the Arkansas Taxpayer Access Point (ATAP) e-filing system (AR1100S instructions; DFA Withholding FAQ).
• S corporation is liable to remit withholding but not for additional tax if withholding is properly made and the shareholder fails to file (26 CAR § 63-103(D)).

Forms directly referenced:

• Arkansas S Corporation Income Tax Return (AR1100S)
• Composite Return for Nonresident Shareholders (Form AR1000CR)
• Annual/Quarterly Withholding Reconciliation (AR941PT)

Source: Arkansas DFA – S Corporation Instructions (AR1100S) Source: 1-26 Ark. Code R. 51-409(c)(1) Source: 26 CAR § 63-103 Source: DFA - Withholding FAQ Source: Arkansas Secretary of State – Franchise Tax

Direct answer:

For Arkansas corporate income tax purposes, interest expense disallowed at the federal level under IRC § 163(j) is not subject to any further adjustment or limitation on the Arkansas return as of the 2026 tax year. Interest is deducted based solely on the version of IRC § 163 in effect on January 1, 1991, and the federal business interest expense limitation introduced in IRC § 163(j) does not apply for Arkansas purposes.

Why:

Arkansas corporate income tax is computed using a model of static conformity to the Internal Revenue Code, adopting specific IRC sections as they existed on a fixed date. Under Arkansas Code Annotated § 26-51-415, the applicable code section is IRC § 163 as in effect on January 1, 1991. The federal business interest expense deduction limitation under IRC § 163(j) was enacted by Public Law 115-97 (Tax Cuts and Jobs Act, 2017) and is not included in the language of IRC § 163 as of January 1, 1991. There is currently no Arkansas statute, regulation, form, or published guidance requiring or allowing a modification related to federal § 163(j) interest disallowance.

Deductions for interest expense on the Arkansas corporate income tax return should therefore be computed without regard to the federal § 163(j) limitation. Interest expense disallowed at the federal level because of § 163(j) remains fully deductible for Arkansas unless separately limited by provisions of IRC § 163 as of 1991 or other Arkansas adjustments. No AR1100REC schedule line, instruction, or DFA guidance references a required adjustment for § 163(j) as of June 2026.

Source support:

• Authority source: Ark. Code Ann. § 26-51-415 references conformity to IRC § 163 as in effect on January 1, 1991.
• Context/source: Review of DFA Corp. Income Tax FAQ and AR1100REC instructions (2024 edition) as published by DFA, which do not mention disallowed interest or any required add-back or subtraction for IRC § 163(j).

Caution / review status:

Not yet human confirmed. Practitioners should confirm against current-year DFA forms and instructions for last-minute regulatory or form-driven changes. This section relies strictly on legislative text and published DFA resources as of June 22, 2026.

Source: Ark. Code Ann. § 26-51-415

Arkansas requires pass-through entities—including S corporations, partnerships, and limited liability companies classified as partnerships—to withhold Arkansas income tax on Arkansas-source income allocable to nonresident shareholders, members, or partners.

Withholding requirement—statute and regulation: Under Ark. Code Ann. § 26-51-919 and DFA Regulation 006.05.07-009 (Rule 2006-3), a pass-through entity must withhold Arkansas income tax from the share of Arkansas-source income attributable to each nonresident owner, unless an exception applies. This applies to S corporation shareholders, partnership partners, or LLC members who are nonresidents of Arkansas.

Withholding rate and form of election: The withholding must be at the highest Arkansas individual income tax rate in effect for the relevant tax year. For 2026, the top individual rate was reduced to 3.7% effective January 1, 2026, by Act 1 (HB1001) of the First Extraordinary Session, as confirmed by DFA’s published 2026 withholding schedules. The withholding obligation covers the nonresident’s full distributive share of Arkansas-source income (not only amounts actually distributed). The pass-through entity may choose to file a composite income tax return (Form AR1000CR) for eligible nonresident owners, provided those owners elect inclusion and have no Arkansas-source income from other sources; composite reporting satisfies the withholding obligation for such members. Alternatively, a nonresident may file Form AR4PT (Affidavit of Exemption/Agreement to File) to be relieved from entity-level withholding by agreeing to file and pay Arkansas tax directly.

Administrative procedure and compliance:

• The entity submits quarterly and annual reconciliations on Form AR941PT.
• Distributions to nonresidents are reported on Form AR1099PT.
• Failure to withhold/remit can result in tax assessment, interest, and penalties against the entity.
• Electronic filing via the Arkansas Taxpayer Access Point (ATAP) system is available for all cited forms.
• Complete instructions are provided on DFA’s Pass-through Withholding Forms & Publications page and in each form instruction set.

Exceptions and caution:

• Exemption via Form AR4PT is only available if the nonresident certifies intent to file and pay Arkansas tax directly.
• Composite return relief (AR1000CR) does not apply if the owner has other Arkansas-source income.
• The highest tax rate is set by law and may change after 2026; practitioners should verify rate schedules annually through official DFA resources.

Source: Ark. Code Ann. § 26-51-919 Source: 006.05.07 Ark. Code R. 009 (Rule 2006-3) Source: DFA Withholding/Pass-Through Tax Forms Source: Form AR4PT – Instructions

Not yet human confirmed. Section reflects reduction of top individual rate to 3.7% effective January 1, 2026, per Act 1 (HB1001) and DFA 2026 schedules. Reviewed as of 2026-06-22.