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    Arkansas Tax Guide 2026

    TaxKiln Editorial · Last reviewed:

    Arkansas imposes a 3-bracket personal income tax topping at 3.9% on income over $24,300 (Ark. Code §26-51-201, reduced from 4.4% in 2024). Long-term capital gains receive a 50% exclusion (§26-51-815) — effectively halving the rate on qualifying gains. State sales tax is 6.5% with average combined ~9.45% (the third-highest in the US). Property tax averages ~0.61%. Arkansas offers an elective PTET as the SALT-cap workaround.

    Personal income tax — recent rate cuts

    Arkansas progressively cut its top individual income tax rate from 7% (2013) → 6.6% (2019) → 5.9% (2022) → 4.7% (2023) → 4.4% (2024) → 3.9% (effective 2024–25, signed by Gov. Sanders). 2026 bracket schedule (Ark. Code §26-51-201): • 0% on first $5,500 • 2.0% from $5,500 to $11,000 • 4.0% from $11,000 to $24,300 • 3.9% on income above $24,300 (note: the 'top' rate is actually LOWER than the middle bracket — a quirk of the recess-and-fold reform) Standard deduction: $2,340 single / $4,680 MFJ for 2026 (low compared to federal). Personal credits replace personal exemptions: $29 per taxpayer + $29 per dependent. No state-level QBI deduction; no AMT.

    50% capital gains exclusion (the headline benefit)

    Ark. Code §26-51-815 lets taxpayers EXCLUDE 50% of net long-term capital gain from Arkansas taxable income. Long-term = federal long-term (held > 12 months). For gains in excess of $10 MILLION on a single transaction, 100% is excluded — making Arkansas a uniquely favorable state for founder/owner exits. Short-term capital gains receive no exclusion (taxed as ordinary income). Effective rate on qualifying LTCG: 3.9% × 50% = 1.95% — among the lowest effective state LTCG rates in the US (only WA's 0% on first $250k and the 9 no-income-tax states beat it).

    Sales tax (third-highest combined in the US)

    State rate 6.5% (Ark. Code §26-52-301). Counties and cities add up to 6.125% locally → combined averages 9.45%, behind only Louisiana (9.55%) and Tennessee (9.55%). Notable cities: • Little Rock: 9.0% combined • Fort Smith: 9.75% • Fayetteville: 9.75% • Texarkana (AR side): 9.25% Groceries: reduced rate 0.125% state + local — Arkansas is phasing out the grocery tax (was 1.5% reduced state rate; cut to 0.125% in 2019, with further reductions tied to revenue triggers). Economic nexus (post-Wayfair): $100,000 in sales OR 200 transactions (Ark. Code §26-52-111).

    Property tax and Amendment 79 cap

    Statewide average effective ~0.61% — one of the lowest in the US. Amendment 79 (Arkansas Constitution, 2000) limits annual increases in the assessed value of a homestead to 5% (10% for non-homestead), regardless of market appreciation. Homestead property tax credit: $425/year direct credit applied against ad valorem taxes (raised in 2023). Counties handle assessment and collection; rates vary widely (Benton ~0.65%, Pulaski ~0.92%, Washington ~0.69%).

    Pass-Through Entity Tax and business considerations

    Arkansas PTET (Act 362 of 2021) — S-corps and partnerships can elect to pay tax at the entity level at the top individual rate (3.9% for 2026). Owners receive a refundable credit. Federal SALT-cap benefit at the entity level deduction. LLC formation: $50 filing + $150 annual franchise tax (Ark. Code §26-54-104) — the franchise tax applies to LLCs and corporations alike. Corporate income tax dropped to 4.3% top rate (effective for tax years beginning on/after Jan 1, 2025). Apportionment is single-sales factor for most industries. No estate tax, no inheritance tax, no gift tax.

    Worked example: Tomás Espinoza, Little Rock medical-device founder (single, 2026 exit)

    Tomás sells his S-corp's IP for $4.2M LTCG after 7 years of holding. Also W-2 reasonable comp $180,000 during the year.

    Federal: LTCG $4.2M taxed at 20% bracket + 3.8% NIIT = ~23.8% on portion above threshold. Possible §1202 QSBS exclusion if eligible — but assume not eligible here. Arkansas: W-2 wages: $180,000 LTCG: $4,200,000 50% LTCG exclusion (§26-51-815): −$2,100,000 Adjusted AR taxable income: $180,000 + $2,100,000 = $2,280,000 Less standard deduction: $2,340 Taxable: $2,277,660 AR tax at 3.9% (top rate, applied schedule): approx $88,829 For comparison: California (no LTCG preference) on the same $4.38M would generate ~$580,000 of state tax — a $491k swing in favor of Arkansas residency. Arkansas property tax on a $750k Little Rock home @ 0.92%: ~$6,900/yr (after $425 homestead credit).

    Statute references

    • Personal income tax brackets (top 3.9%) — Ark. Code §26-51-201
    • 50% long-term capital gains exclusion — Ark. Code §26-51-815
    • State sales and use tax (6.5%) — Ark. Code §26-52-301
    • Economic nexus (Wayfair) — Ark. Code §26-52-111
    • Corporate income tax (4.3% top) — Ark. Code §26-51-205
    • Pass-Through Entity Tax election — Act 362 of 2021
    • Homestead assessment 5% cap — Ark. Const. Amendment 79

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