Estimating Arkansas Sales Tax on Major Purchases
Estimating Arkansas sales tax on major purchases
Sales tax is a frequent source of confusion for faculty preparing grant proposals and can lead to significant under- and over-estimates on the actual cost of purchasing major equipment. The short version is that the University is not exempt from state sales tax but is partially exempt from local taxes, so estimating tax can be complicated for those unfamiliar with the state laws.
The following three entities control the total sales tax rate paid for most expenses on campus, and their individual sales tax rates are:
- City of Fayetteville - 2.00%
- Washington County - 1.50%
- State of Arkansas - 6.50%
- TOTAL: 9.75%
As of January 1, 2008, local tax caps on single transactions no longer apply except for sales of motor vehicles licensed for highway use, aircraft, watercraft, and manufactured housing. State, city, and county taxes are paid at their full rate on the invoice total for all other types of merchandise and sales of services.
However, governmental agencies, schools, colleges and universities, churches, and non-profit organizations may apply for rebates/refunds of additional local tax paid on purchase invoices that exceed $2,500.00.
Therefore, in effect, 9.75% is paid on the first $2500, and 6.5% is paid after that. The difference, 3.25%, on $2500 is $81.25. For a large purchase, it may be more convenient to calculate the tax as 6.5% plus $81.25.
Example: Suppose an instrument is to be purchased and a vendor quote for $96,000 plus $1,000 for shipping and $3,000 for an extended warranty is obtained. Shipping is considered part of the sale, and you must pay tax on it (unless you are billed for the shipping separately by a third party, in which case it is non-taxable). Repair services are taxable in Arkansas, so tax on the warranty should be calculated as well. The total taxable amount is $100,000, and the estimated tax will be $6,581.25. The total acquisition cost for this instrument will be $106,581.25.
For further information, check the The University of Arkansas Tax Cap and Rate website, Fayetteville city website, Arkansas DFA, or a fiscal specialist in your department or college.