Arkansas Sales and Use (Compensating) Tax Protest and Refund Claim

ARKANSAS SALES AND USE (COMPENSATING) TAX PROTEST AND REFUND CLAIM

TABLE OF CONTENTS

1. Transmittal Header
2. Identification of Taxpayer and Action Protested
3. Timeliness and Jurisdiction
4. Statement of Facts
5. Issues Presented
6. Legal Argument
7. Refund Claim Allegations
8. Local Tax Allocation and Rebate Issues
9. Request for Hearing and Election of Forum
10. Reservation of Rights
11. Relief Requested
12. Signature, Verification, and Power of Attorney
13. Certificate of Service
14. Arkansas Sales/Use Tax Practice Notes
15. Sources and References

1. TRANSMITTAL HEADER

Date: [__/__/____]

CONFIDENTIAL TAXPAYER INFORMATION — Ark. Code Ann. § 26-18-303

Via Certified Mail, Return Receipt Requested (Tracking No. [____________])

Arkansas Department of Finance and Administration
Office of Hearings and Appeals (or successor)
Sales and Use Tax Section
Ledbetter Building, 1816 W. 7th Street, Room 2380
Little Rock, AR 72201

Re: Written Protest / Claim for Refund — Arkansas Sales and Compensating (Use) Tax
Taxpayer: [TAXPAYER LEGAL NAME]
FEIN: [__-_______]
Sales Tax Permit No.: [________________]
Audit / Letter ID: [________________________________]
Periods at Issue: [__/__/____ – __/__/____]
Tax Type: ☐ State Sales (Gross Receipts) Tax — Ark. Code Ann. § 26-52-101 et seq.
☐ Compensating (Use) Tax — Ark. Code Ann. § 26-53-101 et seq.
☐ Local Sales/Use Tax — Ark. Code Ann. § 26-74-101 / § 26-75-101 et seq.
Amount in Controversy: $[______] tax + $[______] interest + $[______] penalty

2. IDENTIFICATION OF TAXPAYER AND ACTION PROTESTED

2.1. Taxpayer is [a [state] [corporation / LLC / sole proprietor]] with its principal place of business at [address] and conducts the following business activity in Arkansas: [describe].

2.2. Nexus posture (check applicable):

• ☐ In-state seller with physical presence (storefront, inventory, employees, traveling representatives).
• ☐ Remote seller with economic nexus under Ark. Code Ann. § 26-52-111 / § 26-53-124 (>$100,000 in Arkansas-destination sales OR >200 separate Arkansas-destination transactions in current or prior calendar year).
• ☐ Marketplace facilitator under Ark. Code Ann. § 26-52-103(a)(8) and § 26-52-111(c).
• ☐ Marketplace seller relying on facilitator collection.
• ☐ No nexus asserted (challenging Wayfair-based assertion).

2.3. On [__/__/____], DFA issued [Notice of Proposed Assessment / Notice of Final Assessment / Notice of Denial of Refund Claim] ("Notice"), a true copy of which is attached as Exhibit A, asserting:

2.4. Taxpayer protests the Notice in full / in part as detailed below and / or claims a refund of $[______] under Ark. Code Ann. § 26-18-507.

3. TIMELINESS AND JURISDICTION

3.1. Protest of proposed assessment. The Notice is dated [__/__/____]. Pursuant to Ark. Code Ann. § 26-18-404, this written protest is filed on [__/__/____], the [__]th day after the Notice, within the 60-day administrative review window.

3.2. Alternative TAC petition. Taxpayer expressly reserves the right to elect direct petition to the Arkansas Tax Appeals Commission within 90 days of the DFA action under Ark. Code Ann. § 26-18-1110.

3.3. Refund claim. To the extent this filing also serves as a verified claim for refund under Ark. Code Ann. § 26-18-507, the claim is filed within three (3) years of payment / the original due date and is therefore timely.

3.4. Judicial backstop. Taxpayer reserves the right to pay the assessment under protest and bring suit for refund in circuit court within one (1) year under Ark. Code Ann. § 26-18-406.

4. STATEMENT OF FACTS

4.1. Business operations. [Describe goods/services sold, customers (B2B vs. B2C), delivery methods (shipped, downloaded, performed on-site), and points of sale.]

4.2. Arkansas activity. [Quantify Arkansas-destination sales by year and transaction count, identify physical presence (if any), and describe compliance program.]

4.3. Audit chronology.

4.4. Records produced. All requested books and records were produced in compliance with Ark. Code Ann. §§ 26-18-506 and 26-52-602 (sales tax-specific records). Exemption certificates for the disputed exempt sales are attached as Exhibit B.

5. ISSUES PRESENTED

5.1. Issue 1 — Nexus. Whether Taxpayer's Arkansas-destination activity satisfies the economic-nexus thresholds of Ark. Code Ann. § 26-52-111 / § 26-53-124, or, alternatively, whether the assertion of nexus violates the Commerce Clause under South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018).

5.2. Issue 2 — Taxability. Whether the receipts at issue are exempt from sales tax under [Ark. Code Ann. § 26-52-401(__) — manufacturing / agricultural / resale / governmental / nonprofit / interstate-commerce exemption].

5.3. Issue 3 — Sourcing. Whether the receipts were properly sourced to Arkansas under Ark. Code Ann. § 26-52-521 (destination sourcing) versus another state.

5.4. Issue 4 — Use tax. Whether Taxpayer self-accrued correct compensating-use tax under Ark. Code Ann. § 26-53-106 on out-of-state purchases consumed in Arkansas.

5.5. Issue 5 — Local tax cap / rebate. Whether Taxpayer is entitled to a local-tax rebate under Ark. Code Ann. § 26-74-214 / § 26-75-223 on single transactions exceeding the $2,500 cap.

5.6. Issue 6 — Marketplace facilitator collection. Whether tax already collected by the facilitator under Ark. Code Ann. § 26-52-111(c) precludes a duplicative assessment against the marketplace seller.

6. LEGAL ARGUMENT

6.1. Standard of Review

A proposed assessment is presumed correct, but exemptions claimed by the taxpayer are construed strictly. Pledger v. Easco Hand Tools, Inc., 304 Ark. 47 (1990). Taxpayer bears the burden of producing competent evidence; once that burden is met, the burden shifts to DFA. Ark. Code Ann. § 26-18-313.

6.2. Nexus Argument (Issue 1)

Under Ark. Code Ann. § 26-52-111(a), a remote seller is required to collect Arkansas sales tax only if, in the previous calendar year or the current calendar year, the seller had aggregate sales of tangible personal property, taxable services, digital codes, or specified digital products for delivery into Arkansas exceeding $100,000 OR 200 or more separate transactions. [Apply facts: identify dollar volume and transaction count; argue threshold not met OR safe-harbor period applied.]

Even where the statutory threshold is met, the Commerce Clause requires "substantial nexus." Wayfair, 138 S. Ct. at 2099. [Argue any constitutional infirmity, e.g., disproportionate burden on small remote seller, retroactive application.]

6.3. Taxability / Exemption Argument (Issue 2)

[Apply the specific exemption: e.g., manufacturing-machinery exemption under Ark. Code Ann. § 26-52-402, agricultural-input exemption under Ark. Code Ann. § 26-52-403, resale exemption under Ark. Code Ann. § 26-52-401(12), digital-products carve-out, food-tax reduction under Ark. Code Ann. § 26-52-317, etc. Cite DFA regulation 2007-5 or the applicable rule.]

Exemption certificates supporting the disputed sales (Exhibit B) were obtained in good faith and meet the statutory good-faith requirements of Ark. Code Ann. § 26-52-517(b).

6.4. Sourcing Argument (Issue 3)

Arkansas applies destination sourcing under Ark. Code Ann. § 26-52-521. [Argue facts: title/possession transfer location, shipping terms, delivery records.]

6.5. Use-Tax Argument (Issue 4)

Compensating use tax under Ark. Code Ann. § 26-53-106 applies only to tangible personal property "stored, used, or consumed" in Arkansas. [Distinguish, e.g., property only in transit, or on which sales tax was paid to another state — credit allowed under Ark. Code Ann. § 26-53-131.]

6.6. Local Tax Cap and Rebate (Issue 5)

For single-transaction taxable purchases by a business in excess of $2,500, the city and county sales/use tax does not apply to amounts above the cap; the seller collects on the full amount and the business buyer claims a rebate from DFA. Ark. Code Ann. §§ 26-74-214 and 26-75-223. [Argue rebate entitlement and cite Form ET-179 / ET-179A as applicable.]

6.7. Marketplace Facilitator (Issue 6)

Under Ark. Code Ann. § 26-52-111(c), the marketplace facilitator is the seller of record for facilitated transactions. A marketplace seller cannot be held liable for tax on transactions where the facilitator has collected and remitted tax. [Cite documentation from facilitator; cross-reference Ark. Code Ann. § 26-52-103(a)(8).]

6.8. Penalty Abatement

Penalties should be abated under Ark. Code Ann. § 26-18-208(d) for reasonable cause: Taxpayer reasonably relied on [professional advice / DFA Letter Ruling / industry custom / good-faith exemption certificates / marketplace-facilitator collection].

7. REFUND CLAIM ALLEGATIONS

7.1. Nature of overpayment. Taxpayer overpaid Arkansas state sales/use tax in the amount of $[______] for the periods identified above due to [reason — e.g., tax collected and remitted on exempt sales, double remittance, mathematical error, application of incorrect rate].

7.2. Method of computation. A schedule of overpayments, by transaction, period, and rate, is attached as Exhibit C and reconciles to the books and records of Taxpayer.

7.3. Verification. This refund claim is verified under penalty of perjury in Section 12 below in compliance with Ark. Code Ann. § 26-18-507(b).

7.4. No prior refund. Taxpayer represents that no portion of the amount claimed has been previously refunded, credited, or recovered from a vendor under Ark. Code Ann. § 26-18-507(e) (no double recovery; claim must be made by the person who bore the legal incidence of the tax).

7.5. Statutory waiting period. Taxpayer acknowledges that suit for refund cannot be filed under Ark. Code Ann. § 26-18-406 until at least six (6) months have elapsed from the date of this claim or DFA has issued a written notice of denial.

8. LOCAL TAX ALLOCATION AND REBATE ISSUES

8.1. Local rate verification. All transactions at issue have been re-sourced using the DFA Sales and Use Tax Rate Lookup Tool as of [__/__/____]. A reconciliation by destination ZIP/locality is attached as Exhibit D.

8.2. $2,500 single-transaction cap. Taxpayer has identified [__] transactions where local sales/use tax was collected in excess of the $2,500 single-transaction cap and seeks the rebate under Ark. Code Ann. § 26-74-214 and § 26-75-223 by filing Form ET-179 / ET-179A.

8.3. Streamlined Sales Tax / SSUTA conformity. Arkansas is a full member of the Streamlined Sales and Use Tax Agreement, and certified service providers (CSPs) are entitled to safe-harbor protections under Ark. Code Ann. § 26-52-1701 et seq. [Apply if applicable.]

9. REQUEST FOR HEARING AND ELECTION OF FORUM

9.1. Taxpayer requests an in-person hearing pursuant to Ark. Code Ann. § 26-18-405 and reserves the right to call witnesses and submit expert testimony.

9.2. ☐ Taxpayer ELECTS to proceed before a DFA hearing officer.
☐ Taxpayer ELECTS to bypass internal DFA review and petition the Arkansas Tax Appeals Commission directly under Ark. Code Ann. § 26-18-1110. (If checked, this filing serves as the protest of record and the TAC petition will be filed within 90 days of the DFA action.)

9.3. Taxpayer estimates that the hearing will require [__] hours and [__] witnesses.

10. RESERVATION OF RIGHTS

10.1. Taxpayer reserves all rights under the Arkansas Taxpayer Bill of Rights, Ark. Code Ann. §§ 26-18-801 to 26-18-812.

10.2. Taxpayer reserves the right to amend or supplement this Protest and Refund Claim, to present additional evidence, and to assert additional legal theories at any time prior to issuance of a final assessment or final denial.

10.3. Taxpayer reserves the right to pay the assessment under protest and bring suit for refund in circuit court under Ark. Code Ann. § 26-18-406.

10.4. Taxpayer reserves all federal and state constitutional defenses, including under the Commerce Clause, the Due Process Clause, and the Equal Protection Clause.

11. RELIEF REQUESTED

WHEREFORE, Taxpayer respectfully requests that DFA:

• A. Withdraw the Notice of Proposed Assessment in full;
• B. Alternatively, reduce the assessment to the conceded amount of $[______];
• C. Grant the refund claim of $[______] with statutory interest under Ark. Code Ann. § 26-18-508;
• D. Allow the local-tax rebate of $[______] under Ark. Code Ann. § 26-74-214 / § 26-75-223;
• E. Abate all penalties for reasonable cause;
• F. Schedule an administrative hearing under Ark. Code Ann. § 26-18-405; and
• G. Grant such other and further relief as is just and proper.

12. SIGNATURE, VERIFICATION, AND POWER OF ATTORNEY

Respectfully submitted,

[________________________________]

[REPRESENTATIVE NAME]

Arkansas Bar No. [######] / CPA License No. [______] / EA No. [______]

[FIRM NAME]

[STREET ADDRESS]

[CITY, STATE ZIP]

Telephone: [(___) ___-____]

Email: [___________________]

Verification. I, [TAXPAYER OFFICER NAME], [Title], declare under penalty of perjury under the laws of the State of Arkansas that I have read the foregoing Protest and Refund Claim, including the schedules and exhibits, that the facts stated herein are true and correct to the best of my knowledge, information, and belief, and that I am authorized to file this document on behalf of the Taxpayer. Ark. Code Ann. § 26-18-507(b).

[________________________________]

[TAXPAYER OFFICER NAME / TITLE]

Date: [__/__/____]

Sworn to and subscribed before me this [____] day of [_______________], 20[____].

[________________________________]

Notary Public — State of Arkansas

(My Commission Expires: [_______________])

Power of Attorney (Form AR-POA) attached as Exhibit E.

13. CERTIFICATE OF SERVICE

I certify that on [__/__/____] I served a true and correct copy of the foregoing Written Protest / Claim for Refund and all exhibits upon DFA at the address listed in Section 1 by certified mail, return receipt requested (Tracking No. [____________]), and provided a courtesy copy by email to [[email protected]] and to the assigned audit supervisor.

[________________________________]

[REPRESENTATIVE NAME]

14. ARKANSAS SALES/USE TAX PRACTICE NOTES

• Combined state rate. Arkansas state sales tax = 6.5% (base). Reduced rate for groceries = 0.125% under Ark. Code Ann. § 26-52-317 (effective Jan. 1, 2019). Confirm rate at the time of transaction.
• Local overlay. County and municipal rates added on top, administered by DFA. Combined rates can exceed 11.5% in certain localities. Always verify destination rate via DFA's Sales Tax Lookup.
• $2,500 single-transaction local cap. Local city and county sales/use tax does not apply to amounts above $2,500 per single transaction for businesses; the seller still collects on the full amount, and the business buyer claims a rebate from DFA on Form ET-179 / ET-179A. Ark. Code Ann. §§ 26-74-214, 26-75-223. Calendar the rebate filing deadline (six months from the invoice date).
• Economic nexus thresholds. $100,000 or 200 transactions, current-or-prior calendar year, Ark. Code Ann. § 26-52-111. Do not assume the 200-transaction prong has been repealed; verify on each engagement.
• Marketplace facilitator. Effective July 1, 2019, marketplace facilitators are deemed the seller and must collect/remit tax. Ark. Code Ann. § 26-52-111(c). Marketplace sellers should retain documentation of facilitator collection.
• Exemption certificates. Sellers must accept certificates "in good faith" within 90 days of the sale. Ark. Code Ann. § 26-52-517. A blanket certificate is acceptable for recurring exempt transactions but must be updated periodically.
• Sampling. DFA routinely employs stratified random sampling on sales-tax audits. Negotiate the sampling agreement in writing; preserve objections to extrapolation.
• Statute of limitations. Three (3) years for assessment under Ark. Code Ann. § 26-18-306; six (6) years for substantial omission. Three (3) years for refund claims under § 26-18-507 and § 26-18-306.
• Pay-and-protest path. Under Ark. Code Ann. § 26-18-406, the taxpayer pays the disputed tax under written protest and files suit for refund in circuit court within one (1) year. This is often the only realistic path where the administrative deadline has lapsed.
• Wayfair safe harbor. Arkansas does not impose retroactive economic-nexus liability for periods before July 1, 2019.
• Streamlined Sales Tax membership. Arkansas is a full SSUTA member; CSP-affiliated remote sellers receive defined safe harbors.

15. SOURCES AND REFERENCES

• Arkansas Tax Procedure Act, Ark. Code Ann. § 26-18-101 et seq. — https://arkleg.state.ar.us/
• Ark. Code Ann. § 26-18-507 — Claims for refund — https://law.justia.com/codes/arkansas/title-26/subtitle-2/chapter-18/subchapter-5/section-26-18-507/
• Arkansas Gross Receipts Act, Ark. Code Ann. § 26-52-101 et seq.
• Arkansas Compensating Tax Act, Ark. Code Ann. § 26-53-101 et seq.
• Ark. Code Ann. § 26-52-111 (economic nexus / marketplace facilitator)
• Local Sales and Use Tax — Ark. Code Ann. §§ 26-74-101, 26-75-101 et seq.
• Arkansas DFA — Remote Sellers — https://www.dfa.arkansas.gov/excise-tax/sales-and-use-tax/remote-sellers
• Arkansas DFA — Sales Tax Lookup Tool — https://www.dfa.arkansas.gov/
• Arkansas Independent Tax Appeals Commission — https://ig.arkansas.gov/tax-appeals-commission/
• South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018)
• Pledger v. Easco Hand Tools, Inc., 304 Ark. 47 (1990)
• 26 CAR § 100-111 (Refunds of overpayments) — https://codeofarrules.arkansas.gov/

Disclaimer: This template is provided for informational purposes only and does not constitute legal advice. An Arkansas-licensed attorney must review and customize this document before filing. Statutory deadlines, citations, and DFA / TAC procedures change frequently; verify all authority on the date of filing.