Arkansas Short-term Rental Tax Ruling

A recent ruling from an Arkansas administrative law judge may affect how Arkansas rental dealers structure their agreements. The issue involves the state “short-term rental tax,” which is codified at Ark. Code Ann. Section 26-63-301(b). This statute is aimed at rental yards that rent equipment, party goods and the like by the hour or by the day; however, the law covers all rental or lease agreements with an initial term of less than 30 days.

A rental company was recently audited by the state tax auditors and the auditor claimed that all RTO transactions with weekly or semi-monthly initial terms were subject to the 1% tax in addition to state sales tax. The company had not been charging the short-term tax and appealed the audit conclusion. There was a hearing before an administrative law judge on July 19, 2017 and that judge rendered a decision on October 10, 2017 holding that the company was offering short-term rentals and was liable for the tax on those agreements. Click here to view a copy of that decision. The rental company has appealed the ruling and there are several levels of appeal available before the decision becomes final.

The rental company made several arguments that the short-term rental tax should not apply to RTO transactions and the judge overruled each one. There is a tax statute that could be read to show that RTO transactions are not “leases” as defined in the Code and therefore cannot be subject to the short-term rental tax, as that tax only applies to leases.

Dealers have a few choices that APRO can help you with. If you have questions about Arkansas’ short-term rental tax ruling and how it will affect your business practice, contact us at (800) 204-2776. 

There are more than 180 rent-to-own stores in Arkansas representing an estimated $165 million dollars in annual revenue.