§ 26-51-919 - Arkansas Statutes

LexisNexis Practice Insights

1. Arkansas Withholding on Nonresident Members of Pass-Through Entities

2. Arkansas Composite Return Requirement

26-51-919. Pass-through entities.

(a) As used in this section:

(1) "Lower-tier pass-through entity" means a member of a pass-through entity that is itself a pass-through entity;

(2) (A) "Member" means a shareholder of a Subchapter S corporation, a partner in a general partnership, a partner in a limited partnership, a partner in a limited liability partnership, a member of a limited liability company, or a beneficiary of a trust.

(B) "Member" does not mean a Subchapter C corporation as defined in 1361(a) of the Internal Revenue Code of 1986, in effect January 1, 2005;

(3) "Nonresident" means:

(A) An individual who is not a resident of or domiciled in Arkansas during any part of the tax year;

(B) A business entity that does not have its commercial domicile in Arkansas during any part of the tax year; or

(C) A trust not organized in Arkansas; and

(4) "Pass-through entity" means a business entity that for the applicable tax year is:

(A) A corporation treated as a Subchapter S corporation under 26-51-409, a general partnership, limited partnership, limited liability partnership, limited liability company, or a trust; and

(B) Not taxed as a corporation for federal or Arkansas income tax purposes.

(b) (1) (A) (i) A pass-through entity shall withhold Arkansas income tax at the highest income tax rate levied under 26-51-201 and 26-51-202 on the share of income of the pass-through entity that is derived from or attributable to sources within this state and distributed to each nonresident member.

(ii) The pass-through entity is liable to the Director of the Department of Finance and Administration for the payment of the tax required to be withheld and is not liable to the member for the amount withheld and paid to the director.

(B) (i) A lower-tier pass-through entity shall withhold and pay income tax on the share of income distributed by the lower-tier pass-through entity to each of its nonresident members.

(ii) The director shall apply the tax withheld and paid by a pass-through entity on distributions to a lower-tier pass-through entity to the withholding required of that lower-tier pass-through entity.

(2) (A) On or before the due date for the pass-through entity's composite income tax return described in subsection (d) of this section, a pass-through entity shall file an annual return with the director showing the total amount of income distributed or credited to its nonresident members and the amount of tax withheld and shall remit the amount of tax withheld.

(B) The annual return shall be in an electronic format prescribed by the director.

(3) A pass-through entity shall annually furnish a nonresident member of the pass-through entity with a record of the amount of tax withheld on behalf of the nonresident member no later than the fifteenth day of the fourth month following the end of the pass-through entity's tax year.

(c) A pass-through entity is not required to withhold tax for a nonresident member if:

(1) The nonresident member has a pro rata or distributive share of income of the pass-through entity from doing business in or deriving income from sources within this state of less than one thousand dollars ($1,000) per year;

(2) The director has determined that the nonresident member's income is not subject to withholding;

(3) The nonresident member elects to have the tax due paid as part of a composite return filed by the pass-through entity under subsection (d) of this section;

(4) The pass-through entity:

(A) Is a publicly traded partnership as defined by 7704(b) of the Internal Revenue Code, as in effect on January 1, 2005, that is treated as a partnership for the purposes of federal income taxation; and

(B) Has agreed to file an annual information return reporting the name, address, and taxpayer identification number of each member with an annual Arkansas income greater than five hundred dollars ($500) along with any other information requested by the director;

(5) (A) The pass-through entity has filed with the director on forms prescribed by the director the nonresident member's signed agreement to timely file an Arkansas nonresident individual or trust income tax return, to pay any tax due on the return, and to be subject to the jurisdiction of the Department of Finance and Administration in the courts of this state for the purpose of determining and collecting any Arkansas income tax together with interest and penalties owed by the nonresident member.

(B) (i) The department may revoke the exception from the withholding requirement in subdivision (c)(5)(A) of this section if it is determined that the nonresident member is not abiding by the terms of the agreement.

(ii) At the time of revocation, the department shall notify the pass-through entity that withholding is required for future distributions to the nonresident member whose exception is revoked; or

(6) The income received by the nonresident member is exempt from Arkansas income tax pursuant to 26-51-202(e).

(d) (1) A pass-through entity may file a composite income tax return on behalf of electing nonresident members reporting and paying Arkansas income tax at the highest income tax rate under 26-51-201 and 26-51-202 on the nonresident member's pro rata or distributive shares of income of the pass-through entity from doing business in or deriving income from sources within this state.

(2) A nonresident member whose only source of income within this state is from one (1) or more pass-through entities may elect to be included in a composite return filed pursuant to this section.

(3) A nonresident member who has been included in a composite return may file an individual income tax return and shall receive credit for income tax paid on the nonresident member's behalf by the pass-through entity.

(4) On or before the fifteenth day of the fourth month following the close of the pass-through entity's tax year, a pass-through entity shall file an annual composite return with the director showing the total amount of income distributed or credited to its nonresident members and the amount of tax withheld and shall remit the tax due on the composite income tax return.

(e) The director may promulgate rules necessary to administer this section.