Arkansas Administrative Code › Agency 006 - Department of Finance and Administration › Division 05 - Division of Revenues › Rule 006.05.06-006 - Rule 2006-3 -- Income Tax Rule Withholding on Nonresident Members of Pass-Through Entities

Current through Register Vol. 49, No. 6, June, 2024
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.
A.
General provisions:
Except as provided in Section E,
			 any pass-through entity that makes a distribution to a non-resident member is
			 required to deduct and withhold Arkansas income tax from distributions of
			 taxable income being made with respect to Arkansas source income.
B.
Definitions:
The
			 following words and terms, when used in this Rule, shall have the following
			 meanings:
1. "Department" means the Arkansas
			 Department of Finance & Administration.
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.
3. "Member" means:
a. A shareholder of an
			 S-Corporation;
b. A partner in a
			 general partnership;
c. A partner
			 in a limited partnership;
d. A
			 partner in a limited liability partnership;
e. A member of a limited liability company;
			 or f. A beneficiary of a trust.
4. "Non-resident" means:
a. an individual who is not a resident of, or
			 domiciled in, Arkansas during any part of the tax year;
b. a business entity which does not have a
			 commercial domicile in Arkansas during any part of the tax year; or c. a trust
			 that is not organized in Arkansas. 5. "Pass-through entity" means:
a. A corporation that is treated as an
			 S-Corporation under the
Internal Revenue Code
;
b. A general partnership;
c. A limited partnership;
d. A limited liability partnership;
e. A trust;
f. A limited liability company; or g. A
			 pass-through entity does not include any entity listed in (a) through (f) that
			 is taxed as a corporation or is a disregarded entity for federal income tax
			 purposes.