This rule is adopted under the provisions of Ark. Code Ann. § 25-15-204, § 26-18-101 et seq. and § 26-51-101 et seq. This rule is necessary to properly administer the provisions of Act 2187 of 2005 with regard to the increase in the income tax exemption for enlisted personnel of the armed forces of the State of Arkansas and the United States.

Beginning with the 2005 tax year, the income tax exemption for the service pay and allowances of enlisted personnel increased from $6,000 to $9,000. The income tax exemption for the service pay and allowances of officers did not increase and remains set at $6,000.

A taxpayer who receives both enlisted pay and officer's pay in the same year should prorate each exemption by the number of days the taxpayer received each type of pay divided by the total days of the year the taxpayer received military pay.

Example: Taxpayer received total enlisted pay of $6,250 from January 1 through March 31, 2005. Taxpayer was promoted to an officer on April 1, 2005 and received officer's pay for the remainder of 2005 totaling $26,250.