M&A Advisory in Arkansas

Top individual income tax rate is 3.9% (above ~$25,700 per 2025 indexed brackets) under Act 1 of the Second Extraordinary Session of 2024. The elective PET (Act 362 of 2021, Form AR1100PET) pays 3.9% on ordinary income and 1.95% on net capital gains at the entity level, with quarterly estimates required when tax exceeds $1,000 (Form AR1100ESPET). Election requires >50% of voting-rights owners before the extended due date. The PET rate on capital gains is half the top ordinary rate — a major benefit in exit-year planning.

Fifty percent of net long-term capital gains (assets held >1 year) are exempt from Arkansas income tax under §26-51-815(a)(2); 100% of net capital gains in excess of $10 million in a single tax year are exempt under §26-51-815(a)(3), realized on/after 1/1/2014. Effective state tax on long-term gains is approximately 1.95% up to $10M and 0% above $10M — among the three most seller-friendly states nationally. On a $20M gain, Arkansas tax is capped at ~$195,000. The holding period must be documented on Form AR1000D.

Arkansas conforms to IRC §1202 as in effect January 1, 2017 (Ark. Code §26-51-815(c), as amended by HB 1390 of 2017). Federal QSBS exclusions flow through: qualifying C-corp stock held >5 years can achieve up to 100% federal exclusion on the greater of $10M or 10x basis, honored by Arkansas. Additionally, Arkansas provides a 100% exemption for net capital gains from qualified venture capital investments in AR-based technology or biotechnology enterprises (§26-51-815(d)) held ≥5 years and certified by AEDC. Note: Arkansas does not adopt the newer OBBBA-era §1202 amendments — test conformity dates carefully for post-July 2025 QSBS issuances.

Arkansas has no state estate tax, no inheritance tax, and no gift tax. Act 645 of 2003 repealed the Arkansas estate tax for decedents dying after January 1, 2005. Only the federal estate tax applies ($13.99M in 2025 / $15M in 2026 under OBBBA). Substantial planning opportunity for lifetime gifting, GRATs, SLATs, and IDGTs without state-level drag — particularly valuable for Walmart/Tyson/J.B. Hunt-era generational wealth in Northwest Arkansas where multi-generational founder families hold large pre-QSBS equity positions.

Arkansas imposes a 6.5% state sales and use tax (local add-ons push combined rates to 9.48% average, up to 12.625% in some jurisdictions). In asset sales, transferred equipment, inventory, and fixtures may trigger sales tax unless an occasional/isolated-sale or manufacturing exemption applies; intangibles (goodwill, IP) are not taxed. Arkansas imposes successor liability for unpaid sales/use taxes on the buyer of a business — buyers must contact the Arkansas DFA (Office of Excise Tax Administration) pre-closing to obtain a Certificate of Tax Standing. Because Arkansas repealed UCC Article 6 bulk sales statute, this DFA clearance is the de facto successor-liability release.

AEDC incentive agreements represent 5–15% of enterprise value in many Arkansas transactions and require AEDC consent on change of control. Advantage Arkansas provides 1%–4% of new payroll for 5 years (offsetting up to 50% of Arkansas income tax, 9-year carryforward). ArkPlus provides a 10% investment tax credit on approved capital investment. Create Rebate provides 3.9%–5% payroll cash rebate. Tax Back refunds state sales/use tax on approved building materials and equipment purchases. All four require AEDC pre-signing consent letter to transfer without clawback — engaging AEDC 90+ days before LOI is best practice.