Arkansas Business Taxes for LLCs

Filing fee: $45 online / $50 paper (Certificate of Organization)

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State agency: Arkansas Secretary of State — Business and Commercial Services

Annual report due: May 1 each year (Annual Franchise Tax Report)

State tax rate: Franchise tax: $150 flat fee per year | State income tax: graduated, up to 4.7% (individuals) | Sales tax: 6.5% state rate, up to ~10%+ combined with local taxes

An Arkansas LLC owes several types of taxes: a flat $150 annual franchise tax to the state, pass-through income tax on profits at both the state and federal level, self-employment tax on the owner's share of earnings, and sales tax if the business sells taxable goods or services. The franchise tax is the one most Arkansas LLC owners miss first — it's due every May 1 starting the year after formation.

• Annual franchise tax: $150 flat fee, due May 1 each year
• State income tax: pass-through to members, graduated rates up to 4.7%
• Sales and use tax: 6.5% state rate plus local taxes if you sell taxable goods or services
• Self-employment tax: 15.3% on net earnings from self-employment (federal)
• Federal income tax: pass-through to members, taxed at individual rates
• Payroll taxes: required if you have employees

Annual franchise tax

Every Arkansas LLC — domestic or foreign — owes a flat $150 annual franchise tax to the Arkansas Secretary of State. The amount doesn't change based on your revenue or activity level. It's a privilege tax for the right to do business in the state, and it applies every year starting the calendar year after your LLC is formed.

The $150 payment is filed alongside your Annual Franchise Tax Report, which is due on or before May 1 each year. You can file and pay online through the Arkansas Secretary of State's franchise tax filing system at sos-franchise.ark.org. There are no extensions for this deadline.

State income tax

Arkansas LLCs are pass-through entities by default, which means the business itself doesn't pay state income tax. Instead, profits flow through to the members, who report them on their personal Arkansas income tax returns and pay tax at individual rates.

In a single-member LLC, all business income is reported on the owner's personal return. In a multi-member LLC, income is split among members according to the operating agreement and each member files their own return. Arkansas's individual income tax is graduated — a tax professional can help you figure out your effective rate based on your income level.

Sales and use tax

If your Arkansas LLC sells taxable goods or certain services, you need to register for sales tax with the Arkansas Department of Finance and Administration before making your first taxable sale. The state sales tax rate is 6.5%. Cities and counties add their own rates on top of that, so the combined rate varies by location and can exceed 10% in some areas.

Arkansas also has a compensating use tax of 6.5% at the state level. It applies to tangible personal property you buy from outside Arkansas and bring into the state for use or storage. If you're buying equipment or inventory from out-of-state vendors, use tax may apply. The Arkansas DFA's sales and use tax FAQ is a good starting point for checking whether your specific products or services are taxable.

Self-employment and federal taxes

As an LLC owner, you pay self-employment tax on your share of the business's net earnings. The self-employment tax rate is 15.3% — covering Social Security and Medicare — and it applies to the first $168,600 of net earnings for Social Security (as of 2024), with the 2.9% Medicare portion applying to all net earnings above that.

On top of self-employment tax, you owe federal income tax on your share of LLC profits at your individual rate. Because no employer withholds these taxes for you, most LLC owners need to make quarterly estimated tax payments to the IRS. Missing estimated payments can mean an underpayment penalty at year end. A tax professional can help you figure out the right payment schedule.

Employee and payroll taxes

If your LLC has employees, you take on payroll tax obligations. You'll need to withhold federal income tax, Social Security, and Medicare from employee wages, match the Social Security and Medicare contributions as the employer, and pay federal unemployment tax (FUTA). Arkansas also requires state income tax withholding from employee wages.

Payroll tax rules are detailed and the stakes for getting them wrong are real — you can end up on the hook for back taxes, penalties, and interest. A payroll service or tax professional can help you set up withholding correctly from the start.

Late penalties and what happens if you miss the deadline

Missing the May 1 franchise tax deadline costs you. The Arkansas Secretary of State adds a flat $25 late penalty to the unpaid $150 franchise tax. On top of that, the delinquent amount accrues 10% annual interest, calculated daily. For a single tax year, the combined franchise tax, penalty, and interest is capped at twice the original tax owed — so no more than $300 total for one year.

If the franchise tax goes unpaid long enough, the state can revoke your LLC's authorization to do business in Arkansas. Getting reinstated takes time and additional fees. Filing on time every May 1 is the simplest way to stay in good standing.