Guide to Taxes in Arkansas, 2025 Edition
Arkansas's Tax Landscape: A Comprehensive Overview
Arkansas has a unique tax system, with a higher-than-average combination of sales taxes and income taxes. The state's sales tax rate stands at 6.5%, and localities can add up to an additional 6.125%, making it one of the higher sales tax rates in the country.
One of the notable features of Arkansas's tax system is the exemption of certain income sources. Retirees age 59.5 or older can avoid taxation on the first $6,000 of an IRA distribution, and up to $6,000 of income from private or government employer-sponsored retirement plans is also tax-exempt. Social Security retirement benefits and Railroad Retirement benefits are tax-exempt as well. Military retirement pay is also exempt from taxation in the state.
Arkansas's tax structure also affects consumer goods. Groceries are taxable, but prescription drugs are exempt from sales tax. The tax on cigarettes is $1.15 per pack, and other tobacco products are taxed at 68% of the wholesale price. Alcohol taxes vary, with a $0.75 per gallon tax on wine, $0.23 per gallon on beer, and $2.50 per gallon on liquor.
The tax on medical marijuana in Arkansas is 10.50%, and the tax on gasoline and diesel is $0.22 and $0.23 per gallon, respectively. It is worth noting that Arkansas does not have estate or inheritance taxes.
Property taxes in Arkansas are some of the lowest in the country, with the average effective property tax rate being 0.53%. People with disabilities may qualify for the property tax freeze regardless of age, and residents 65 or older who qualify for the homestead exemption may have their property tax assessed value frozen. Construction and "substantial improvements" can cause the assessed value of property to increase.
For those seeking a deeper understanding of Arkansas's tax laws, subscriptions to The Kiplinger Tax Letter are available for $69 for 26 biweekly issues. The Tax Foundation reports that Arkansas has a graduated state individual income tax ranging from 2% to 4.40%.
In conclusion, Arkansas's tax system presents a mix of tax exemptions and higher-than-average tax rates, particularly in sales tax. Understanding these nuances can help residents and businesses make informed decisions about their financial planning.
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