Arkansas Sales Tax Exemption Rules for Businesses

Understanding Sales Tax Exemptions in Arkansas

An Arkansas sales tax exemption certificate is essential for businesses to legally avoid paying sales tax on qualifying purchases. Proper management of these certificates helps ensure businesses don’t overpay taxes and remain compliant with state regulations. Without an efficient system, businesses risk failed audits, penalties, and costly operational inefficiencies from expired or missing certificates.

We understand that navigating the complexities of Arkansas sales tax exemption requirements can be daunting, especially for businesses expanding across state lines or managing multiple transactions. You’re not alone in facing these challenges, and ensuring compliance can feel overwhelming without the right guidance

In this blog, we’ll explore who is eligible for an Arkansas sales tax exemption certificate and the process for applying. We’ll also highlight common mistakes to avoid and show how automation tools like Commenda can streamline your certificate management.

What Are Exemption and Resale Certificates?

In Arkansas, exemption and resale certificates are used by businesses and organizations to avoid paying sales tax on eligible purchases. While both certificates serve to exempt certain purchases from sales tax, they are used in different scenarios and by different types of buyers. Understanding the distinction between them is essential when it comes to Arkansas sales and use tax exemption certification requirements.

Here are the two types of certificates:

• Resale Certificate: Used by businesses that purchase items with the intention of reselling them.
• Exemption Certificate: Used by qualified entities, such as nonprofits or government agencies, that are legally exempt from paying sales tax on certain purchases.

To obtain the certificate, you must complete the appropriate application available on the Arkansas Department of Finance and Administration’s (DFA) website.

Form ST-391 serves as the primary certificate for both resale and exemption purposes. This single form allows businesses and organizations to claim tax exemptions based on their specific status or the intended use of the purchased goods.

The following table provides an overview of the differences between the certificates:

Exemption Types Recognized in Arkansas

In the state of Arkansas, several types of sales tax exemptions are available to qualified buyers. Each exemption type is defined by its purpose, eligibility, and required documentation. Businesses and organizations must collect and retain the appropriate Arkansas sales tax exemption certificate for each tax-exempt transaction.

Note: The only document required for these exemptions is Form ST-391.

• Resale Exemption: Purchases made by businesses intending to resell items in the regular course of business.
  • Note: A valid resale certificate from another state may be accepted in lieu of a local certificate.
• Nonprofit Organizations: Organizations recognized under 26 U.S.C. § 501(c)(3) engaged in charitable, religious, or educational activities.
  • Note: Exemption available for nonprofits with annual budgets under $200,000 providing charitable services.
• Government Entities: Includes federal, state, and local government agencies and subdivisions.
• Manufacturing Exemption: Exempts purchases of machinery, equipment, and certain utilities used in manufacturing.
  • Note: Machinery and equipment for farming purposes are also exempt.
• Agricultural Exemption: Exempts purchases related to the commercial production of agricultural products, such as feedstuffs, fertilizers, and equipment. 
• Prescription Drugs and Medical Equipment: Exempts sales of prescription drugs, oxygen for human use, and certain medical equipment.
• Food and Food Ingredients: Sales subject to a reduced tax rate of 0.125%. No exemption certificate is required.
• Low-Income Household Exemptions: Exemptions for specific goods and services purchased by low-income households, like prescription drugs and motor fuels.
• Sales to Qualified Museums: Sales of tangible personal property or services to museums for construction, repair, or expansion.
• Sales Tax Holidays: Specific periods when items are exempt from sales tax. Documentation: No exemption certificate required.

By implementing an organized state of Arkansas sales tax exemption certificate management system, manual or automated, businesses can ensure consistent compliance.

State-Specific Requirements for Exemption Certificates in Arkansas

In Arkansas, exemption certificates must meet specific state standards to be considered valid. A proper Arkansas sales tax exemption certificate must include complete and accurate information that clearly supports the buyer’s claim for tax-exempt status. Incomplete or outdated certificates can result in tax liability for the seller during an audit.

Note: For those unfamiliar, what is a Arkansas sales tax exemption certificate? It’s a state-recognized document, such as Form ST-391, that allows qualified buyers to make tax-free purchases on eligible goods or services.

Required Information on the Certificate

To be valid, a buyer-specific sales tax exemption certificate in Arkansas must include the following elements:

• Buyer’s name, address, and Arkansas Taxpayer Identification Number (TIN) (if applicable).
• Seller’s name and address.
• A clear reason for the exemption (e.g., resale, nonprofit use, manufacturing, government purchase).
• A description of the items being purchased.
• The signature of the authorized buyer or representative.
• Date of execution.
• Expiration date or statement of indefinite validity (when applicable).

Certificate Forms Accepted in Arkansas

Arkansas primarily uses Form ST-391 as the official exemption certificate for claiming various exemptions, including resale, nonprofit, government, and manufacturing exemptions. This form is used to support tax-exempt purchases and is valid until revoked or updated.

Paper vs. Electronic Submission

Arkansas allows both paper and electronic versions of exemption certificates, depending on the seller’s system. Many businesses use electronic filing and certificate management tools to enhance submission and reduce audit risk. However, do note the following points:

• PDF or signed originals are acceptable.
  Project-specific exemptions can be submitted electronically.
• Sellers must retain records for at least three years for audits.
• A structured system for sales tax exemption certificate compliance in Arkansas, especially for businesses handling large volumes of exempt transactions, can prevent costly errors and improve audit accuracy.

Common Pitfalls and Compliance Risks

Handling exemption certificates in Arkansas requires accuracy and discipline. Below are the most common issues and risks tied to Arkansas sales tax exemption certificate mismanagement:

• Ignoring Certificate Requirements: Businesses sometimes overlook required details, leading to invalid or risky tax-exempt transactions. Certificates must meet all criteria to be valid. Do sales tax exemption certificates expire in Arkansas? In Arkansas, sales tax exemption certificates, such as Form ST-391, do not have a fixed expiration date.
• Expired Certificates: Many Arkansas exemption certificates do not have an expiration date, but certain exemptions (e.g., agricultural or nonprofit) may require periodic renewal or updates. Using expired or incorrect certificates can void the exemption.
• Incomplete or Missing Data: Arkansas exemption certificates must include complete buyer and seller information, the exemption reason, the signature, and the transaction date. Incomplete certificates are invalid.
• Ineligible Use: Using certificates for non-qualifying purchases is a common mistake. Sellers are still liable for unpaid taxes if the exemption is applied incorrectly.
• Poor Recordkeeping: Arkansas businesses must retain certificates for at least three years for audit purposes. Disorganized or inadequate tracking increases compliance risks.
• Tax Assessments: If a valid exemption certificate cannot be produced, sellers are liable for unpaid taxes on those transactions.
• Penalties and Interest: The state may impose penalties and interest on unpaid taxes, adding additional financial burdens.

Real-World Example

This scenario demonstrates how poor certificate management can lead to significant financial exposure:

A manufacturing company in Arkansas sells equipment to agricultural businesses, assuming they qualify for the agricultural exemption. However, the company fails to verify the accuracy of the exemption certificates. During an audit, it is found that several certificates are incomplete, lacking the buyer’s Arkansas Taxpayer Identification Number (TIN). As a result, the company faces a $15,000 assessment in unpaid taxes, penalties, and interest, and is flagged for future audits due to poor certificate management.

Best Practices for Managing Exemption Certificates

To stay compliant with Arkansas sales tax laws, businesses must adopt disciplined and proactive approaches to managing exemption certificates. Failure to follow best practices can result in penalties, denied exemptions, and audit risks.

Here are proven methods to ensure proper handling of Arkansas sales tax exemption certificates:

• Collect at the Time of Sale: Always collect exemption certificates during the transaction, not after. Missing or late documentation can void the exemption.
• Validate Against State Standards: Ensure the certificate includes complete buyer/seller information, exemption reason, signature, and the correct form (e.g., Form ST-391). If you’re wondering how do I get a Arkansas sales tax exemption certificate, then you must understand that the forms are available on the DFA website.
• Use Digital Storage: Store certificates electronically for easy access during audits. Arkansas requires businesses to retain records for a minimum of three years.
• Set Renewal Reminders: Some exemptions, like agricultural or nonprofit exemptions, may require periodic updates. Use a calendar or software tool to remind you to request updated forms before expiration.
• Conduct Internal Audits: Periodically review certificates to identify expired, missing, or incorrect documentation before an audit occurs.

How Commenda Simplifies Exemption Certificate Management

Managing exemption certificates manually is time-consuming, error-prone, and risky, especially under Arkansas’ strict compliance requirements. Commenda simplifies the entire process, making it easier to collect, validate, and manage every Arkansas sales tax exemption certificate with minimal effort. Here’s how we can help you:

• Automated Collection: Certificates are automatically requested during the transaction, ensuring they are collected at the point of sale or procurement.
• Instant Validation: Commenda verifies key fields such as buyer/seller information, exemption reason, and form type (e.g., Form ST-391), eliminating uncertainty around obtaining the correct sales tax exemption certificate.
• Centralized Digital Storage: Certificates are securely stored in the cloud with audit-ready access, ensuring compliance with Arkansas’ three-year record retention rule.
• Expiration Tracking & Renewal Alerts: Automatic reminders ensure certificates are renewed before they expire, preventing compliance gaps and minimizing audit risks.
• Compliance Dashboards: Built-in tools highlight missing or invalid certificates, helping businesses stay ahead of audit risks and maintain proper Arkansas sales tax exemption certificate management.
• System Integration: Commenda integrates seamlessly with your ERP, POS, or e-commerce platforms, embedding compliance into your everyday operations.

With our global sales tax platform, Arkansas businesses can manage sales tax exemption certificates with confidence, efficiency, and full compliance.

Getting Started with Commenda in Arkansas

Commenda is customized for businesses managing exemption compliance in Arkansas. Whether you’re a distributor, manufacturer, or service provider, Commenda ensures your Arkansas sales tax exemption certificate process is accurate and audit-ready. Here’s how it works:

1. Create Your Commenda Account: Sign up and select the setup that best suits your business type and transaction volume.
2. Connect Your Systems: Easily integrate Commenda with your ERP, POS, or e-commerce platform to automate certificate collection and validation.
3. Upload or Request Certificates: Import existing certificates or automatically request new ones from customers during purchase.
4. Enable Arkansas-Specific Compliance: The platform auto-detects Arkansas rules, including form types, required fields, and expiration tracking.
5. Monitor and Maintain: Use dashboards, renewal alerts, and audit tools to manage ongoing compliance with Arkansas sales tax exemption certificate management standards.

Have questions or want to see how it works? Book a demo today to speak directly with a tax automation expert. Start managing Arkansas exemption certificates the smart way, automate compliance with Commenda today.

FAQs: Exemption Certificates in Arkansas

Q. What are the specific documentation requirements for exemption certificates in Arkansas?

Certificates must include the buyer and seller’s names, exemption reason, signature, date, and the appropriate Arkansas form, such as Form ST-391 for general exemptions or resale. Incomplete forms are invalid and will not protect you in an audit.

Q. How do I know if a buyer qualifies for an exemption under Arkansas tax law?

Verify if the buyer is a qualifying entity, such as a reseller, nonprofit, government entity, manufacturer, or purchasing for a statutorily exempt purpose. Use the certificate’s exemption code and match it to Arkansas-defined categories.

Q.  Does Arkansas require periodic renewal or revalidation of exemption certificates?

Yes, certain exemptions in Arkansas, such as agricultural or nonprofit-related exemptions, may require periodic renewal or revalidation. While many certificates are valid indefinitely or until revoked, some must be updated periodically.

Q.  Can I accept out-of-state resale or exemption certificates in Arkansas?

Yes, Arkansas generally accepts out-of-state resale certificates as long as the buyer is registered in Arkansas and holds a valid Arkansas sales tax license.

Q. What happens if I can’t obtain a certificate before a sale?

Sales tax must be charged if a valid exemption certificate is not on file at the time of the sale. Arkansas law does not allow retroactive application of exemption certificates.