Sales tax on invoices in Arkansas

Arkansas treats contractors as the consumers of their materials. Work on passive building components, such as roofs, pipes and wiring, isn’t a taxable service, while repairing or replacing mechanical and electrical items, or installing them in an existing building, is taxable.

Sales tax permit and who owes the tax

Arkansas’s gross receipts (sales) tax is collected by the seller of tangible personal property or taxable services, except where the purchaser pays the tax to the state directly, and sellers are liable for it on all taxable sales at the combined state, city and county rate. If your business performs both taxable and nontaxable services, or sells tangible personal property at retail, you need a sales tax permit; if it performs no taxable services and makes no retail sales, you don’t.

Contractors: consumers, with a line between passive and mechanical

Under 26 CAR § 30-1003, a contractor constructs, manages or supervises the construction, erection, alteration or repair of a building or other improvement affixed to real estate. All contractors are consumers of the materials, supplies and equipment they use in performing a contract, and they pay the tax when they buy them or when they withdraw the materials from stock for the job.

• Passive components: not taxable. Installing, altering, adding to, refinishing, replacing or repairing nonmechanical, passive or manually operated components that become part of real estate isn’t a taxable service. The rule’s list includes walls, ceilings, doors, locks, windows, heat and air ducts, roofs, wiring, breakers, switches and receptacles, light fixtures, pipes, plumbing fixtures, alarms, sprinkler systems, parking lots, fences and fireplaces.
• Mechanical and electrical items: taxable, except first-time installation in new buildings. First-time installation of mechanical or electrical equipment in a newly constructed or substantially modified building isn’t taxable, but installing it in an existing building is. Repairing or replacing motors, electrical appliances, machines and other mechanical items is taxable; the rule’s examples include dishwashers, heating and air conditioning units, garbage disposals, water heaters, ceiling fans and garage door motors.
• Carpet and flooring: first-time installation in a newly constructed or substantially modified building isn’t taxable; initial installation in an existing building is taxable, and so are replacing and repairing carpet or flooring.

How you pay for materials depends on your permit. With a sales tax permit, you buy your materials for resale: materials used in nontaxable work aren’t taxed to the customer, but you self-assess and pay tax on them as a withdrawal from inventory, and on taxable work you collect tax on the materials from the customer along with the labor. A business that isn’t required to hold a permit pays tax on all its material purchases. You can’t use another person’s direct pay permit; you pay the tax on your materials and may pass it on as part of the cost of the contract.

Trade examples in the contractor rule

• HVAC: original installation of heat and air ductwork, in new or existing construction, and first-time installation of heating and cooling units in new or substantially modified buildings aren’t taxable. Initial installation of units in existing construction, and later repair or replacement of units or their mechanical or electrical components, are taxable, parts included. Repairing or replacing ductwork isn’t taxable, but if one job covers both ductwork and units, the whole charge plus all materials is taxable unless you separate the ductwork labor and material charges from the unit charges.
• Plumbing: installing, replacing or repairing pipes and nonmechanical plumbing fixtures isn’t taxable; you pay tax on the materials and collect no tax from the customer. Initial installation of mechanical or electrical items or appliances, such as a water heater, isn’t taxable in new construction but is taxable in an existing building, where you collect tax on the labor and on the property you sell.
• Electrical: installing, repairing or replacing nonmechanical materials that become part of a structure, such as wiring, breakers and light fixtures, isn’t taxable. Repairing or replacing a mechanical or electrical component, such as a ceiling fan, is taxable, and so are the parts. For first-time installation of such a component in new or substantially modified construction, the rule’s electrical subsection reads differently from its general new-building rule, so check with the Department of Finance and Administration before leaving tax off.
• Roofing: roofs are passive components, so installing, replacing or repairing one isn’t a taxable service; you pay tax on the materials and don’t tax your customer.

Services: a listed set

Arkansas taxes a listed set of services. It includes installing, altering, cleaning, refinishing, replacing and repairing listed kinds of tangible personal property, such as motors, electrical appliances, household appliances and machinery, whether or not they’re affixed to real property. It also includes pool cleaning and servicing, lawn care and landscaping, cleaning or janitorial work, cleaning parking lots and gutters, pest control, security and alarm monitoring, and locksmith services. Service contracts and extended warranties that cover taxable services are taxable when sold.

Landscaping everywhere, lawn care on nonresidential property

Landscaping is taxable in Arkansas on residential and nonresidential property; lawn care is taxable only on nonresidential property.

• Landscaping means installing, preserving or enhancing ground cover by planting trees, bushes, shrubbery, grass, flowers and other plants, including sodding and seeding. It doesn’t include site preparation, cutting and filling, leveling, tree trimming or removal, or clearing a site of bushes and trees.
• How to charge it: collect state and local tax on the total price, whether the work is part of a general building contract or a separate agreement with the landowner. Collect it from whoever you contract with, general contractors included, on the total contract cost including plants.
• Permit and purchases: you must hold a sales tax permit. Buy the materials that stay on the customer’s property for resale; the materials you use or consume can’t be bought tax-free.
• Lawn care means mowing or raking, chemical spraying, fertilizing, weed control or weed-eating and general lawn maintenance of nonresidential property. Tree trimming or removal isn’t lawn care.
• Residential means a single-family residence used solely as the owner’s or occupant’s principal residence, including one leased to the occupant. Apartment buildings, condominiums and duplexes are nonresidential.

So a lawn service charges no tax for mowing a single-family home that’s its owner’s or occupant’s principal residence, but charges tax on landscaping at that same home and on lawn care at apartments, condominiums, duplexes and commercial property.

Cleaning, janitorial work and pressure washing

Cleaning or janitorial work is taxable in Arkansas: services to rid the interior or exterior of any building, dwelling or other structure of dirt, impurities or extraneous matter. Cleaning streets, sidewalks, driveways and other areas that aren’t part of a building is generally not taxable. Cleaning a contractor does itself during or at the end of a construction job isn’t taxable, but cleaning by a third party the contractor hires is. The items you use or consume in cleaning can’t be bought tax-free.

Cleaning, sweeping or pressure washing a parking lot, including a parking garage or deck, is taxable, and so is cleaning gutters at the edge of a roof or a street. Pavement patching, asphalt repair, sealing, grading, installing wheelstops and sandblasting to prepare for resurfacing aren’t taxable services.

Collecting the tax on your invoice

The seller must collect Arkansas’s tax and may compute it on each item or on the whole invoice. On nontaxable contract work, no tax is collected from your customer and the materials aren’t taxed to them; on taxable work, you collect tax on both the labor and the materials.

Local tax: where you deliver or work

Cities and counties levy local sales taxes on top of the state rate on this page. Local tax on merchandise follows its point of delivery, but if you provide landscaping or commercial lawn care, you collect local tax for the jurisdictions where you perform the taxable services, and taxable repairs you do at the customer’s location are taxed where you do them.