Arkansas has been one of the most aggressive tax-cutting states of the 2020s. Its top corporate rate has fallen from 6.5% to 4.3%, and the top personal rate from 5.9% to 3.9%. Formation costs are among the lowest in the country. The weak spot is sales tax: with local add-ons, Arkansas has one of the highest combined rates in the United States.
This guide explains Arkansas's business taxes for 2026, including the annual franchise tax, and shows how the state compares with its six neighbors.
Corporate income tax
Arkansas taxes C corporations on a graduated schedule:
| Taxable income | Rate |
|---|---|
| $0 to $3,000 | 1% |
| $3,000 to $5,000 | 2% |
| $5,000 to $11,000 | 3% |
| Over $11,000 | 4.3% |
The lower brackets are small, so nearly all corporate profit is effectively taxed at 4.3%. On $500,000 the effective state rate is about 4.26%.
Key points:
- Apportionment: Arkansas moved to single sales factor apportionment, phased in over recent years, which favors companies that produce in the state and sell elsewhere.
- Net operating losses: Carryforward periods have been extended, and Arkansas has moved toward federal conformity on many items.
- Returns: Form AR1100CT is due on the 15th day of the fourth month after year-end.
Personal income tax and pass-through owners
Arkansas taxes individuals at graduated rates with a top rate of 3.9% for 2026:
| Taxable income | Rate |
|---|---|
| $0 to $4,600 | 2% |
| Over $4,600 | 3.9% |
Arkansas uses separate tax tables for low-income taxpayers, and some credits phase in at different levels. For a business owner earning a typical small-business profit, almost all income is taxed at 3.9%.
Pass-through entities can elect to pay income tax at the entity level. Arkansas's pass-through entity tax lets partnerships and S corporations pay at the top individual rate and deduct the tax federally, with owners receiving a credit.
Sales and use tax
The state sales tax rate is 6.5%, among the higher state rates. Cities and counties add local taxes, bringing the average combined rate to about 9.48%.
Additional rules:
- Groceries: Food is taxed at a reduced state rate of 0.125%, but local taxes still apply.
- Services: Arkansas taxes a broader range of services than many states, including some repair, cleaning, pest control and certain personal services.
- Remote sellers: Out-of-state sellers with more than $100,000 in Arkansas sales or 200 or more transactions must collect.
- Streamlined Sales Tax: Arkansas is a full member, which simplifies registration and rate lookup for multistate sellers.
Franchise tax
Every corporation and LLC registered in Arkansas pays an annual franchise tax to the Secretary of State, due May 1:
| Entity | Annual franchise tax |
|---|---|
| LLC | $150 flat |
| Corporation with stock | 0.3% of outstanding capital stock, minimum $150 |
| Corporation without stock | $300 flat |
Late payment adds penalties and interest, and continued non-payment leads to revocation.
Payroll and property taxes
- Unemployment insurance: Employers pay state unemployment tax on a taxable wage base that Arkansas has set at a low level of $7,000 since 2024. New employers start at a standard rate around 3.1%.
- Withholding: Employers withhold Arkansas income tax using the state's withholding tables.
- Property tax: Arkansas assesses property at 20% of market value. Business personal property, including inventory, must be reported annually to the county assessor by May 31.
Forming a business in Arkansas: fees and ongoing costs
| Item | LLC | Corporation |
|---|---|---|
| Formation filing fee | $45 online | $45 online |
| Annual franchise tax | $150 | 0.3% of capital stock, $150 minimum |
| Annual report | Filed with franchise tax | Filed with franchise tax |
| Registered agent | Required | Required |
Arkansas is one of the cheapest states to form an entity. Over five years, an LLC pays roughly $795 in state fees.
Worked example: $500,000 of profit
| Step | Amount |
|---|---|
| Taxable income | $500,000 |
| Arkansas corporate tax | $21,277 |
| Federal tax at 21% on $478,723 | $100,532 |
| Total income tax | $121,809 (24.4%) |
For a single LLC owner with $150,000 of Arkansas taxable income, state tax is about $5,763. At $75,000 it is about $2,838. These estimates use the simplified bracket schedule above and exclude credits.
How Arkansas compares with its neighbors
Arkansas now sits in the middle of a region that has competed hard on income taxes. Louisiana's 2025 reforms gave it a flat 3% personal rate, and Missouri and Oklahoma charge just 4% on corporations. Arkansas's advantage is cheap formation and a predictable $150 franchise tax, compared with Tennessee's net worth-based franchise tax and 6.5% excise tax on LLCs.
Choosing an entity in Arkansas
- LLC: The most common choice. It pays the $150 franchise tax, and the owners pay up to 3.9% on profit.
- S corporation: Same state income tax treatment as an LLC, but it can save federal self-employment tax. S corporations pay franchise tax based on capital stock.
- C corporation: The 4.3% top rate keeps the combined federal and state rate around 24.4%, which is attractive for reinvesting profits.
For owners with significant income, the pass-through entity tax election can convert state income tax into a federal deduction.
Recent changes for 2025 and 2026
- Rate cuts: The top corporate rate is 4.3% and the top personal rate 3.9%, after several special sessions cut both.
- Lower unemployment wage base: The taxable wage base was reduced to $7,000, lowering unemployment costs per employee.
- Grocery tax: The state portion of tax on food stays at 0.125%, with legislation to eliminate it pending local fiscal reviews.
- Single sales factor: Fully phased in for corporate apportionment.
Is Arkansas a good state for business?
Advantages
- Low and falling income tax rates for corporations and individuals
- Very low formation costs and a simple $150 LLC franchise tax
- Low costs of living, labor and real estate
- Single sales factor apportionment rewards in-state production
Drawbacks
- One of the highest combined sales tax rates in the country
- Sales tax on a broad range of services
- Annual franchise tax applies even in loss years
- Smaller labor markets outside Northwest Arkansas and Little Rock
Arkansas's income taxes now compare well with neighbors like Mississippi, Missouri and Oklahoma. It can't match Texas or Tennessee for individuals, which have no wage income tax, but those states have their own entity-level taxes.
Compliance checklist
- File a Certificate of Organization or Articles of Incorporation with the Arkansas Secretary of State.
- Register with the Department of Finance and Administration for sales tax, withholding and income tax.
- Register with the Division of Workforce Services for unemployment insurance if you hire.
- Pay the annual franchise tax by May 1.
- Report business personal property to the county assessor by May 31.
- File the appropriate income tax return: AR1100CT for corporations, AR1100S for S corporations or AR1050 for partnerships.
Compare Arkansas with its neighbors below or estimate your taxes with the United States calculator. For more background, see Corporation taxes.