006.05.212-GR-93. BUNDLED TRANSACTIONS:
AR ADC 006.05.212-GR-93Arkansas Administrative Code
Ark. Admin. Code 006.05.212-GR-93
006.05.212-GR-93. BUNDLED TRANSACTIONS:
Examples: Services to real property include building framing, roofing, plumbing, electrical, painting, janitorial, pest control, and window cleaning.
Examples: Packaging that is incidental or immaterial to the retail sale include grocery sacks, shoeboxes, dry cleaning garment bags, express delivery envelopes and boxes, bottles, or other materials such as wrapping, labels, tags, and instruction guides.
b. A product provided free of charge with the purchase of another product is not a separate and distinct product. A product is considered to be provided free of charge if the sales price of the product purchased does not vary based on the inclusion of the product that was provided free of charge. Such products provided free of charge are considered “promotional products”.
Examples: A free car wash with the purchase of gasoline, or free dinnerware with the purchase of groceries.
c. The price is separately identified by product on binding sales or other supporting sales-related documentation, which is made available to the customer in paper or electronic form, such as an invoice, bill of sale, receipt, contract, service agreement, lease agreement, periodic notice of rates and services, rate card, or price list;
d. If a seller bills or invoices one (1) price for the sale of distinct and separate products, but the price invoiced is equal to the total of the individually priced or itemized products contained in the supporting sales related documentation, such as a catalog, price list, or service agreement; or
e. If the seller bills or invoices one price for a transaction that includes a bundle of products and also includes one (1) or more additional products that are individually priced or itemized in a catalog or price list, the additional products individually priced or itemized will not be considered to be a part of the bundled products sold for one non-itemized price.
f. If a transaction does not qualify as a bundled transaction because of the provisions in GR-93(C)(2)(a)-(C)(2)(e), the transaction will not be classified as a bundled transaction as a result of the seller offering a subsequent discount of the total sales price without itemizing the amount of the discount for each product. In such a situation, if there is no sales-related documentation showing the allocation of the discount, the discount will be considered to be allocated pro rata among the otherwise separately itemized products.
a. The retail sale of tangible personal property and a service where the true object of the transaction is the service and the tangible personal property is essential to the use of the service, and is provided exclusively in connection with the service. If the transaction is not a bundled transaction as a result of this exception, then the true object of the transaction will be the retail sale of the service and should be taxed accordingly.
Example: Computer programming services where the client is given a back-up disk and instruction manual. The true object of the transaction is the provision of the programming services. The computer programmer is selling nontaxable services and is not making a sale of a bundled transaction. Arkansas sales tax is not due on the programmer's charge for services; sales tax is due on the programmer's purchases of tangible personal property used to fulfill the service.
b. The retail sale of services where one (1) service is provided that is essential to the use or receipt of a second service and the first service is provided exclusively in connection with the second service, and the true object of the transaction is the second service. If the transaction is not a bundled transaction as a result of this exception, then the true object of the transaction will be the retail sale of the second service and should be taxed accordingly.
c. Factors that should be considered to determine the true object of a transaction are the following: the seller's line of business; the purchaser's object of the transaction; whether the tangible personal property or service that is essential to the second service is available for sale separately without the second service; and how the tangible personal property or service is essential to the second service.
c. A seller must use the full term of a service contract to determine if the taxable products in the transaction are de minimis. For the purpose of determining whether services in the transaction are de minimis, the price of the services shall not be prorated based on the term of the service contract.
b. A seller may use either the purchase price or the sales price of the products to determine if the taxable tangible personal property is fifty percent (50%) or less of the total purchase price or sales price of the tangible personal property. A seller may not use a combination of the purchase price and sales price of the tangible personal property when making the fifty percent (50%) determination for a transaction.
Example: A retailer prepares and sells gift boxes that consist of the following items: a mug, a book, and coffee beans. The seller's purchase prices for the items are $3.00, $5.00, and $3.00, respectively; the total purchase price for the items is $11.00. The purchase price of the non-food items, subject to the full state sales tax rate, is $8.00. The purchase price of the coffee, subject to the reduced state sales tax rate on food and food ingredients, is $3.00. The gift box is subject to the full state sales tax rate and any applicable local tax because the percentage for the non-food items is 73% ($8.00/$11.00= .727). (Note: If the percentage for the food and food ingredients in the gift box was more than fifty percent (50%), then the gift box would be subject to the reduced state sales tax rate and any applicable local tax.)
E. RECORDS. In order to show whether a retail sale consisted of one (1) or more distinct and identifiable products and whether the products were sold for one (1) non-itemized price, a seller shall maintain copies of invoices, service agreements, contracts, catalogs, price lists, rate cards, and other sales-related documents given to, or made available to, the purchaser.
1. If the price is attributable to products that are taxable and products that are nontaxable, the portion of the price attributable to the nontaxable products is subject to tax unless the provider can identify, by reasonable and verifiable standards, the portion of the products that are nontaxable from its books and records.
2. If the price is attributable to products that are subject to tax at different tax rates, the total price is attributable to the products subject to the highest tax rate unless the provider can identify, by reasonable and verifiable standards, the portion of the price attributable to the products subject to the lower tax rate from its books and records.
Credits
AUTHORITY: Ark. Code Ann. § 26-52-103
Current with amendments received through February 15, 2024. Some sections may be more current, see credit for details.
Ark. Admin. Code 006.05.212-GR-93, AR ADC 006.05.212-GR-93
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