Tax in Arkansas: a complete guide

Arkansas income tax  

If you plan to earn money while you reside in Arkansas, even in retirement distributions, you need to know how you’ll be taxed on this income.  

There are two levels of taxation to account for. Firstly, the federal level. Federal tax applies everywhere in the US, regardless of where you live. Here you will fit into one of seven federal income tax brackets and be legally required to pay an amount corresponding to how much you earn.  

Secondly, since Arkansas is not one of the places in the US with no state income tax, you’ll be taxed at the state level. Residents and non-residents who earn in Arkansas, as well as estates and trusts formed of money made in the state, are taxed as follows:

Individuals with a net income of less than or equal to $84,500:

Individuals with a net income above $84,500:

This is a “graduated” tax system, as it increases according to your income. A graduated system also applies to corporate income tax in Arkansas. As of January 2023: 

Arkansas sales tax  

Arkansas sales tax rate is higher than in nearby Oklahoma and Missouri but on par with other places like Texas. Statewide, it’s set at 6.5 percent, with local sales tax rates capped at a maximum of 6.125 percent. 

The maximum combined rate you could be charged in Arkansas is 12.625 percent, with the average combined rate paid by Arkansans (or Arkansawyers, as some locals prefer) sitting at 9.46 percent. In Oklahoma, for comparison, the statewide rate is 4.5 percent, the max local rate is seven percent, and the average combined rate is 8.98 percent. 

While sales tax applies to most things, including numerous physical products and specific services like towing, dry cleaning, tattooing, pest control, and pet grooming, it is reduced to 0.125 percent for groceries (plus any local sales taxes). There will also sometimes be sales tax holidays on certain products. For instance, many qualifying item purchases in the following categories weren’t taxed between August 5 and 6, 2023: 

Prescription drugs are exempt from sales tax in Arkansas, as are some farming equipment purchases and any purchases made using food stamps.  

Tax rates on restricted products like alcohol and tobacco differ by type:

Arkansas property tax  

In Arkansas, residents enjoy the 16th lowest property tax rate in the US, on average just 0.57 percent. There’s no statewide tax applied. Instead, a district/county-level assessor will determine how much you should be taxed annually based on the value of your home, and this money will be put toward funding public schools in your area by your local authority.  

Here are some examples of how annual property taxes range from county to county: 

Arkansas motor tax  

Between October 2023 and September 2024, clear diesel will be taxed in Arkansas at $0.285 per gallon. Gasoline will be taxed at $0.247 per gallon, though in “border zone” areas, this will shift slightly according to existing rates in neighboring states:

All new and used cars in Arkansas are covered by sales tax, which must be paid before a vehicle you buy can be registered. Sales tax on motor purchases is charged at the standard rate of 6.5 percent statewide, plus any county/municipal rates in the area you buy in. A motor vehicle purchase's total combined tax rate is usually around 9.13 percent.  

Arkansas estate tax 

Suppose you’re going to be on the receiving end of a financial gift from a family member or close friend upon their death, or you’re planning your estate. In that case, it’s essential to consider the tax implications that might apply in any chosen state. 

Thankfully, Arkansas has no state-level tax of this kind to contend with. There’s also no state-level inheritance tax that could negatively affect you. However, it’s important to note if you’re inheriting from someone else, you may be accountable to their state's and your own laws, so don’t forget to account for this). 

Arkansas retirement tax 

Social Security benefits are tax-exempt in Arkansas.  

401(k) distributions, IRA (Individual Retirement Account) distributions, and other pensions are taxable. You’ll pay somewhere from 0 percent to 4.7 percent according to the amount you receive (see the graduated state income tax chart earlier in this article). However, it’s worth noting that taxpayers 59.5 years or older can deduct up to $6,000 of eligible retirement income from their taxable income each year. 

Overall, some costs and savings come with life in Arkansas, and it’s up to you to determine whether the tax burden is fair, suitable and manageable in your particular situation. Property prices and taxes are generally very low compared to other US states, while sales taxes are higher than they might be elsewhere.  

For further tax guidance and to ensure you’re not paying more tax than you need to, it’s wise to speak to an expert. A financial advisor can help you handle all your tax queries and ensure you’re not paying more tax than needed.   

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