§ 26-51-919 — Pass-through entities - Definitions

(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) "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; (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 , 26-51-202 , and 26-51-205 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 Secretary 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 secretary. (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 secretary 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 secretary 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 secretary. (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 secretary 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 26 U.S.C. § 7704(b) , 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 secretary; (5) (A) The pass-through entity has filed with the secretary on forms prescribed by the secretary the nonresident member's signed agreement to timely file an Arkansas corporation, 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 , 26-51-202 , and 26-51-205 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 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 end of the pass-through entity's tax year, a pass-through entity shall file an annual composite return with the secretary 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 secretary may promulgate rules necessary to administer this section.

Legislative History

Amended by Act 2019, No. 910,§ 3774, eff. 7/1/2019. Amended by Act 2019, No. 910,§ 3773, eff. 7/1/2019. Amended by Act 2019, No. 910,§ 3772, eff. 7/1/2019. Amended by Act 2019, No. 910,§ 3771, eff. 7/1/2019. Amended by Act 2019, No. 910,§ 3770, eff. 7/1/2019. Amended by Act 2019, No. 910,§ 3769, eff. 7/1/2019. Amended by Act 2019, No. 910,§ 3768, eff. 7/1/2019. Amended by Act 2019, No. 910,§ 3767, eff. 7/1/2019. Amended by Act 2017, No. 760,§ 4, eff. for tax years beginning on and after 1/1/2018. Amended by Act 2017, No. 760,§ 3, eff. for tax years beginning on and after 1/1/2018. Amended by Act 2017, No. 760,§ 2, eff. for tax years beginning on and after 1/1/2018. Amended by Act 2017, No. 760,§ 1, eff. for tax years beginning on and after 1/1/2018. Acts 2005, No. 1982, § 1; 2007, No. 218, § 37; 2009, No. 372, § 24.