006.05.324. WITHHOLDING ON NONRESIDENT MEMBERS OF PASS-THROUGH ENTITIES (amended 10/2007)
AR ADC 006.05.324Arkansas Administrative Code
Ark. Admin. Code 006.05.324
006.05.324. WITHHOLDING ON NONRESIDENT MEMBERS OF PASS-THROUGH ENTITIES (amended 10/2007)
This rule is adopted under the provisions of Ark. Code Ann. §§ 25-15-204, 26-18-101 et seq., 26-51-101 et seq. and 26-51-919(e). This rule is necessary to properly administer the withholding provisions of Ark. Code Ann. § 26-51-919 with regard to the taxable income of nonresident members of pass-through business entities.
2. “Distributed” or “Distribution” means a non-resident member's distributive share of a pass-through entity's income and shall include a cash payment, a distribution of other property, a credit to the member in lieu of such payment, or the member's distributive share of the entity's income or other gain that is passed through to the member and which is subject to Arkansas income tax. Distributions paid or credited are not subject to withholding under Ark. Code Ann. § 26-51-919 if the distributions paid or credited to the non-resident members are subject to withholding under other provisions of Arkansas law, or represent a return of such member's investment, or a return of capital, or represent previously taxed income. If distributions are subject to withholding under other provisions of Arkansas law, distributions paid or credited are first considered to be distributed out of a member's current year distributive share of an entity's income or other gain that is passed through to the member and which is subject to Arkansas income tax. Any distributions paid or credited for the year that exceed the member's distributive share of the entity's income or other gain that is passed through to the member are not subject to Arkansas withholding.
1. Corporations, partnerships and LLC's: In the case of S-Corporations, general, limited, or limited liability partnerships and limited liability companies, withholding at the highest income tax rate levied under §§ 26-51-201 and 26-51-202 is required on the Arkansas portion of the taxable income distributed to each non-resident member. In the case of S-Corporations paying the tax on behalf of non-resident shareholders or partnerships filing composite returns on behalf of non-resident partners, the non-resident members' withholding can be claimed on the return filed by the S-Corporation or the partnership.
a. In the affidavit, the non-resident member agrees to be subject to the personal jurisdiction of the Department and the courts of Arkansas for the purpose of determining and collecting any Arkansas taxes, including estimated tax payments, together with any related interest and penalties. See Section (J) of this rule for the procedure to be followed in filing the affidavit.
4. When a pass-through entity is a publicly traded partnership, as defined by Section 7704(b) of the Internal Revenue Code (as in effect on January 1, 2005), and is treated as a partnership for purposes of the Internal Revenue Code. Provided, however, that the publicly traded partnership has agreed to file an annual information return reporting the name, address, taxpayer identification number, and any other information requested by the Department of each member with an annual Arkansas income greater than $500; or
1. A pass-through entity is required to provide the Department with an annual return (Form AR941PT) that includes magnetic media (a CD or 3.5” diskette) showing to whom the distribution was paid on or before the fifteenth day of the fourth month following the close of the pass-through entity's tax year. The magnetic media must also include the non-resident member's address, social security number or federal employer identification number, the amount of taxable income distributed and the amount of Arkansas income tax withheld and paid on the member's behalf. The magnetic media should be labeled with the form number “AR941PT”, the pass-through entity's name, federal employer identification number and the number of records contained on the disk or CD. The final version of the media layout will be posted on the Withholding Website. The annual return may be amended if necessary.
2. (i) A pass-through entity must provide a non-resident member of the pass-through entity with an annual record (Form AR1099PT) of the amount of income distributed and the income tax withheld on behalf of the non-resident member no later than the 15th day of the third month following the end of the pass-through entity's tax year. Copies of AR1099PT, along with AR1096, must be sent to the Department by the same date.
(ii) Pursuant to Ark. Code Ann. § 26-18-505, the Director finds that there is good cause to allow the provision of the annual record (Form AR1099PT) to coincide with the filing date for the annual return (AR941PT). Therefore the date for such filing is extended to the fifteenth day of the fourth month following the close of the pass-through entity's tax year.
H. Credit or refund: Any non-resident member from whom Arkansas income tax is withheld pursuant to the provisions of this rule, and who files an Arkansas income tax return, is entitled to a credit for the amount of Arkansas income tax withheld. If the amount withheld is greater than the Arkansas income tax due, the non-resident member will be entitled to a refund of the amount of the overpayment.
I. Registration: Pass-through entities that make distributions subject to Arkansas withholding must register with the Department using Form AR4ER. IMPORTANT: When completing the AR4ER, check the “Pass Through Entity” box and add the two digit processing suffix number, seventy (70), to your FEIN (ex: 12-3456789-70). YOU MUST use the processing number on all related forms for pass-through withholding tax remittance. If this processing number is not included with your FEIN, processing of your payments will be delayed.
J. Affidavit filing procedures: Non-resident members who elect to file an affidavit (Form AR4PT) agreeing to be subject to the personal jurisdiction of the Department and the courts of Arkansas for the purpose of determining and collecting any Arkansas taxes, including estimated tax payments, and any related interest and penalties, must remit the affidavit to the appropriate pass-through entity. The pass-through entity is to retain the affidavit and file the following information with the Department by the due date of the required annual tax return of the pass-through entity.
1. Content: The name, address, and social security number or federal identification number of the non-resident member having a signed Form AR4PT. All pass-through entities are required to file the non-resident member withholding exemption affidavit information on a diskette or CD with the Withholding Branch of the Department's Individual Income Tax Section.
3. Waiver: A pass-through entity may obtain a waiver from the diskette or CD filing requirement if the pass-through entity can demonstrate that a hardship would result if it were required to file on a diskette or CD. Direct waiver requests to the Withholding Branch of the Department's Individual Income Tax Section.
K. Deductions, Adjustments and Credits: The Arkansas income tax due on a composite return (Form AR1000CR) shall not be reduced by a pass-through entity non-resident member's allowable Arkansas business incentive income tax credits nor any other deductions, adjustments or credits. A non-resident member must file a return on Form AR1000NR to claim any deductions, adjustments or credits.
Current with amendments received through February 15, 2024. Some sections may be more current, see credit for details.
Ark. Admin. Code 006.05.324, AR ADC 006.05.324
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