The Arkansas Department of Revenue upheld a use tax assessment against a taxpayer for transactions involving complimentary meals.
Taxpayer’s Argument
The taxpayer contended that Arkansas sales tax applied to the transactions, placing the burden of collection and remittance of tax upon the sellers, not the taxpayer, in the absence of an exemption claim.
Flaw in the Taxpayer’s Analysis
The flaw in the taxpayer’s analysis was that it is wholly irrelevant for the application of Arkansas sales tax versus Arkansas use tax whether a vendor is or is not registered with the Arkansas Secretary of State’s Office or may have locations somewhere in Arkansas.
Legal Basis for Assessment
Under Arkansas Regulations §GR-5 and binding case law, the application of Arkansas sales tax turns on whether the situs of the sale is located within Arkansas.
Key Facts of the Case
- The assessed use tax transactions occurred outside of Arkansas and then were shipped into Arkansas.
- No arguments or evidence were provided to show that the Department incorrectly concluded that the situs for the associated transactions was not located within Arkansas.
Conclusion by the Department
Consequently:
- The transactions were not subject to Arkansas sales tax.
- They were subject to Arkansas compensating use tax in the absence of an applicable tax credit, deduction, or exemption.
Arkansas use tax applies when items are purchased outside the state and brought into Arkansas for use, even when those items are provided as complimentary meals.
Frequently Asked Questions
What is the difference between Arkansas sales tax and use tax?
Sales tax is imposed on transactions where the sale occurs within Arkansas, meaning the location or “situs” of the sale is in the state. Use tax, on the other hand, applies when goods are purchased outside Arkansas and brought into the state for use, especially when those items were not taxed at the point of purchase.
Why did the Arkansas Department of Revenue apply a use tax instead of sales tax?
The Department applied use tax because the transactions occurred outside Arkansas, and the goods were then brought into the state. Since the situs of the sale was not in Arkansas, sales tax did not apply. Use tax is designed to capture such out-of-state purchases used within the state.
Did the taxpayer argue that the seller should have collected the tax?
Yes, the taxpayer contended that Arkansas sales tax should have applied, placing the responsibility of tax collection on the seller. However, the Department found this argument irrelevant because the transactions did not occur within Arkansas.
Does it matter if the seller is registered in Arkansas for tax purposes?
No, the seller’s registration status with the Arkansas Secretary of State or presence in the state does not determine whether sales or use tax applies. The determining factor is where the sale itself occurred.
Are complimentary meals subject to Arkansas use tax?
Yes, complimentary meals brought into Arkansas from out-of-state purchases are subject to use tax if no sales tax was paid at the time of purchase and no applicable tax credits or exemptions apply.