Arkansas Food Tax vs Sales Tax

Arkansas imposes a 6.5 percent state sales and use tax on certain nonfood items. It imposes a 0.125 percent state reduced food tax on food items. These tax rates, and tax rates on other items such as beer, mixed drinks and liquor, are listed at the Arkansas Department of Finance and Administration (DFA) website. In 2019, Arkansas cut the tax rate on food items to 0.125 percent from 1.5 percent.

A remote seller is an out-of-state seller without a physical presence in Arkansas that engaged in 200 transactions or sold $100,000 worth of tangible personal property, taxable services, a digital code or digital products for delivery into the state in the current or previous year. A marketplace facilitator is an actor that facilitated the sale of such tangible personal property, taxable services, a digital code or digital products in Arkansas. Remote sellers and marketplace facilitators that are registered in Arkansas with the DFA or through the state’s Streamline Sales and Use Tax Agreement must collect and remit sales and use taxes to the state.

There are over 300 local taxes in the state of Arkansas. The majority of cities and counties have their own local taxes. A city or county can enact a local sales and use tax if the voters of the jurisdiction vote for it. The state collects a local sales and use tax and distributes it back to the cities and counties every month.

Businesses report the cities or counties for which they have collected a sales tax or use tax to the state on their Excise Tax Report. If a business makes a retail sale of property, such as a food item, and delivers the tangible property through a common carrier – the business’ truck, mail or any other shipping or delivery method to the customer – the business will charge the state, county and city taxes based on where the purchaser takes possession of the property or makes first use of the services. The existence of local taxes means cities and counties can place additional taxes on food and nonfood items.

A seller can find out the local tax rates for locations where they deliver merchandise in the sales tax reporting forms packets they receive at six-month intervals. The listings are also available at any time by contacting the state’s sales and use tax section at 501-682-7105 or by accessing DFA’s website. DFA also mails listings of city and county tax rate changes to registered taxpayers every quarter.

A purchaser can consult the Arkansas State Sales and Use Tax Guide to determine what qualifies as food or food ingredients. Food and food ingredients are defined as substances sold for ingestion or chewing by people and consumed for taste or nutritional value. The list of food and food ingredients includes most common grocery food items and foods packaged by a manufacturer for home consumption. For example, items on the list include baby food, bread, milk and nutritional meal replacements.

There are a number of items at grocery stores that seem to be food and food ingredients that would qualify for the lower tax rate, yet they actually are subject to the full state sales and use tax rate. These items include alcoholic beverages, trays of deli food and other foods combined by a seller like a supermarket, and foods sold with eating utensils, like a birthday cake with a plastic knife or a salad with a disposable fork.

Other items subject to the full state sales tax include: dry ice; fountain drinks and dispensed beverages; bakery items made by the seller, including cakes made or decorated by the seller; rotisserie chicken and other foods heated by the seller; decorated pumpkins and other decorated food items like gingerbread houses; salad bar and salads made by the seller; and seeds, unless they are marked for human consumption, like roasted sunflower seeds.

Additional items at a grocery store subject to the full state sales and use tax rate include nonfood items like soap and toothpaste; foods that are heated or combined, like a store-made submarine sandwich; over-the-counter medicinal products; pet foods and pet products; candy; rock salt; ready-to-drink coffee; dietary supplements like vitamins, minerals and amino acids; soft drinks; food baskets, like a gift-wrapped basket of fruit; and tobacco products, including cigarettes.

An alcoholic beverage is a beverage that contains one-half of one percent (0.5) or more of alcohol by volume. A dietary supplement must be labeled as a dietary supplement. Prepared food is defined as food sold in a heated state or heated by the seller, such as chicken fingers.

Prepared food does not include food that is cut, repackaged or pasteurized by the seller, like watermelon cubes. Prepared food also does not include food containing raw animal products that require cooking by the consumer, such as raw beef cubes on skewers with peppers and onions.

Candy is defined as a mixture of sugar, honey or other natural or artificial sweeteners combined with chocolate, fruit, nuts or other ingredients in bars, drops or pieces. Candy does not include a preparation containing flour, like a mix for cake pops. Candy must not require refrigeration.

A soft drink means a nonalcoholic beverage that contains natural or artificial sweeteners. A soft drink does not include a beverage that contains milk or milk products, soy, rice or similar milk substitutes. A soft drink may not be over 50 percent vegetable or fruit juice by volume.

A business that is seeking an exemption from paying sales or use tax must complete Form ST-391 for an exemption certificate. A business will need to complete this form to document a tax-free transaction. A seller who fraudulently fails to collect the sales tax, solicits a purchaser to participate in an unlawful claim for an exemption, or accepts an entity-based exemption when one is not available in Arkansas will be responsible for the sales tax due on the transaction. A seller may be entitled to claim an entity-based exemption based on their status, such as being a charitable organization.