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006.05.523-VI. Members.

AR ADC 006.05.523-VIArkansas Administrative CodeEffective: November 28, 2022

West's Arkansas Administrative Code
Title 006. Department of Finance and Administration
Division 05. Division of Revenues
Rule 523. Arkansas Elective Pass-Through Entity Tax
Effective: November 28, 2022
Ark. Admin. Code 006.05.523-VI
006.05.523-VI. Members.
Currentness
(a) An affected business entity must annually report to the Secretary the pro rata interest of each member of the affected business entity.
(1) The annual report is to be filed on forms furnished by the Secretary.
(2) The pro rata interests reported to the Secretary are conclusive for computing a member's tax liability under the Elective Pass-Through Entity Tax Act and Ark. Code Ann. § 26-51-404(b)(35)(A), unless the member demonstrates the reported interests are fraudulent.
(b) An affected business entity is required to annually report to each member that member's respective pro rata share of the Pass-Through Entity Tax paid by the entity for the taxable year.
(c) A nonresident individual who is a member of an affected business entity is not required to file an individual income tax return if, for the taxable year, the only source of income derived from or connected with sources within this state for the member or, if a joint income tax return is filed, the member and his or her spouse, is from one (1) or more affected business entities and each affected business entity files and pays the taxes due under the Elective Pass-Through Entity Tax Act, § 26-65-101 et seq.
(d) A member of an affected business entity shall, if otherwise required to file, exclude from gross income on their individual income tax return an amount equal to the product of:
(1) The income subject to the tax paid under the Elective Pass-Through Entity Tax Act, § 26-65-101 et seq., by an affected business entity of which the person is a member; and
(2) The person's pro rata interest, as reported to the Secretary under § 26-65-108, in the affected business entity of which the person is a member.
(e) A resident or part-year resident member shall exclude from gross income on his or her individual income tax return the member's pro rata share of income subject to tax paid to another state or the District of Columbia on the income of an affected business entity, if the taxes paid to the other state or District of Columbia result from a substantially similar tax to the tax imposed under the Elective Pass-Through Entity Tax Act.
(f) A member's pro rata share of the income of an affected business entity that has income from within and without Arkansas shall be allocated or apportioned and then taxed as follows:
(1) If a portion of the affected business entity's income for a taxable year is allocated or apportioned to Arkansas as required by Ark. Code Ann. § 26-51-701 et seq., that portion of the income allocated or apportioned to Arkansas shall be subject to the Pass-Through Entity Tax as provided in these rules and the member's pro rata share of that income shall be excluded from the member's gross income for Arkansas income tax purposes.
(2) If a portion of the affected business entity's income for a taxable year is apportioned to a state having a tax on pass-through entities that is substantially similar to the tax imposed by the Elective Pass-Through Tax Entity Act and that substantially similar tax is actually paid to that state by the affected business entity, the member's pro rata share of that portion of the income subject to the substantially similar tax in the other state shall be excluded from a member's gross income for Arkansas income tax purposes.
(3) If a portion of the income of an affected business entity for a taxable year is apportioned to a state that is not Arkansas and does not provide a tax on pass-through entities that is substantially similar to the tax imposed by the Elective Pass-Through Tax Entity Act, a member of the pass-through entity who is a full-year or part-year resident of Arkansas shall include their pro rata share of the income apportioned to that state in the member's gross income for Arkansas income tax purposes. If the member lawfully paid a state income tax on their proportionate share of the income to the other state, the member is entitled to a credit for the tax paid to the other state on that portion of the member's income that is subject to income tax both in Arkansas and the other state, subject to the limitations provided in Arkansas law, including Ark. Code Ann. § 26-51-504(a)(1).
(g) Payments made to a member of an affected business entity and not related to the member's pro rata share of the affected business entity's income, such as salaries, guaranteed payments, rent, interest, and royalties paid to the member, are:
(1) Taxable in Arkansas if the member is an Arkansas resident or part-year resident; or
(2) Taxable in Arkansas if the member is a nonresident and the payments are apportioned or allocated to Arkansas or are otherwise attributable to Arkansas.

Credits

Adopted Nov. 28, 2022.
Authority. Ark. Code Ann. § 26-51-404(b)(35); Ark. Code Ann. § 26-51-504; Ark. Code Ann. § 26-65-103; Ark. Code Ann. § 26-65-105; Ark. Code Ann. § 26-65-108.
Current with amendments received through February 15, 2024. Some sections may be more current, see credit for details.
Ark. Admin. Code 006.05.523-VI, AR ADC 006.05.523-VI
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