While SaaS is exempt from sales tax in the state, Arkansas does tax some digital goods, including content such as streaming video, streaming audio, and e-books.
All businesses operating in Arkansas should be aware of the state’s tax rates: the statewide base rate is 6.5%, and many local municipalities add their own sales tax. The average combined rate in Arkansas is 9.45%. Businesses that have nexus in Arkansas (a physical or economic connection to the state) may be required to collect and remit sales tax in the state — more on nexus later in this article.
Understanding how Arkansas approaches sales tax on software services is essential for businesses. Noncompliance with tax laws in the states where they do business can result in fines, penalties, audits, and damage to their reputation and bottom line.
Taxation rules in Arkansas
Arkansas currently does not tax SaaS products. SaaS is software that is accessed via the internet rather than installed directly on a user’s device.
Examples include customer relationship management platforms, project management tools, and cloud storage services. These products are often billed through subscriptions and are delivered entirely online, which places them outside of the state’s taxable categories.
Taxation on other software
While SaaS remains exempt from sales tax, other types of software are in taxable categories under Arkansas law.
Prewritten, or "off-the-shelf," software delivered in physical formats may be subject to sales tax. Custom software accessed remotely is generally not taxable.
However, software bundled with physical products, such as a device preloaded with software, may be taxable. Businesses offering such products should carefully examine how Arkansas applies its tax rules to combined offerings.
What about digital goods?
Unlike SaaS, digital goods (classified as "specified digital products") are taxable in Arkansas. This includes products like e-books, streaming video, and streaming audio services — however, there are notable exemptions.
Digital subscriptions to newspapers, journals, periodicals, and academic databases are not taxed. This distinction reflects the state’s focus on entertainment-related digital goods while leaving educational and informational resources tax-free.
Businesses offering digital goods should pay close attention to each of these classifications to accurately handle their tax obligations.
Potential future changes
There has not been significant movement toward taxing SaaS in Arkansas, but the national trend toward classifying SaaS as taxable suggests that it remains a possibility.
With an increasing number of states enacting legislation to tax SaaS, Arkansas may revisit this exemption in the future. Businesses operating in the state should stay informed about legislative updates and consider the implications of any potential tax policy shifts.
You should still think about compliance
While SaaS is not taxable in Arkansas, many states, including nearby Texas and Tennessee, do impose sales tax on SaaS transactions.
For example, Texas taxes SaaS under its rules for software accessed remotely, while Tennessee includes SaaS in its taxable digital products category. These differences illustrate the varying approaches states take when it comes to SaaS taxability.
Businesses selling SaaS products need to navigate this complex landscape carefully, especially as more states adopt similar tax policies. Keeping track of obligations across all 50 states is essential for any company offering SaaS solutions, as a mistake can lead to fines or other financial setbacks.
Understanding nexus
Nexus is the legal connection between a business and a state that triggers tax collection responsibilities. For SaaS companies, understanding nexus rules is a foundational step in managing compliance efforts. There are two types of nexus:
- Physical nexus: If a business maintains a physical presence, such as an office, warehouse, or employees in Arkansas, it establishes nexus and must collect taxes on taxable products or services.
- Economic nexus: Even without a physical presence, a business can establish economic nexus in Arkansas if its annual sales exceed $100,000 or if it completes 200 transactions in the state in a year.
Staying compliant nationwide
For SaaS businesses, staying compliant with sales tax requirements across multiple states is essential in order to avoid fines and penalties and to maintain positive relationships with customers.
One of the biggest challenges companies face is navigating the complex and varied tax rules that differ from state to state — some states tax SaaS outright, while others focus only on specific types of digital goods instead. The lack of uniformity in how SaaS is taxed means that businesses must pay close attention to where they have nexus and how local laws apply to their products.
General steps to compliance
Staying compliant in any state involves a few straightforward but necessary steps. These steps may not apply directly to SaaS businesses, since Arkansas doesn’t currently tax SaaS; however, they’re highly relevant for companies offering taxable digital goods and services:
- Register: Businesses selling taxable digital goods or services in Arkansas must first obtain a sales tax permit through the Arkansas Taxpayer Access Point (ATAP). This online portal allows businesses to register quickly and provides access to account management tools, filing options, payment processing, and more.
- Collect: After registering, businesses are responsible for collecting the appropriate sales tax on taxable transactions.
- File: Sales tax returns must be filed through ATAP. Filing frequency depends on your sales volume; it may be monthly, quarterly, or annually.
- Remit: Collected taxes must be remitted to the Arkansas Department of Finance and Administration (DFA) by the designated deadline. Late payments can result in penalties and interest charges, so staying on top of filing and remittance schedules is important.
Managing your sales tax obligations across multiple states can be complicated. But thankfully, there are tools that can help. Numeral helps simplify the many complexities of tax compliance for SaaS and digital goods companies throughout the United States.
With features like automated nexus tracking, accurate tax rate calculations across states, and streamlined filing processes, Numeral helps businesses efficiently and easily manage their sales tax obligations.
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Additional resources for staying compliant
Businesses operating in Arkansas must stay informed about the state’s sales tax regulations. Here are several important resources that can help:
Arkansas government resources
The Arkansas DFA provides an array of comprehensive resources and information on sales and use tax regulations, forms, and rates, such as:
- Sales & Use Tax Overview: Provides detailed information on Arkansas's sales and use tax laws, including recent changes and FAQs.
- Sales and Use Tax Forms: Allows access to necessary tax forms for compliance and reporting.
- Sales and Use Tax FAQs: Offers answers to common questions regarding sales tax in Arkansas.
- Local Tax Lookup Tools: Important tools to determine local tax rates within Arkansas.
- Sales & Use Tax Rates: A list of current state and local sales and use tax rates.
The bottom line
SaaS remains nontaxable in Arkansas—however, many digital goods, such as streaming audio, streaming video, and e-books, are taxable, so it’s essential to understand which categories apply to your products. Companies with operations across the U.S. must monitor compliance across multiple states to prevent unforeseen liabilities, particularly as tax laws change over time.
For businesses looking to simplify their compliance efforts, tools like Numeral offer valuable help. They can automate tracking, filing, and remittance, cutting down on the manual effort needed to manage tax obligations while helping you keep pace with changing regulations nationwide.
