Department of Finance and Administration
Legislative Impact Statement
Bill: SB394
Bill Subtitle: TO AMEND THE LAW CONCERNING THE COLLECTION OF SALES AND USE TAX
ON MOTORBOATS; AND TO SUBJECT CERTAIN USED MOTORBOATS TO A SPECIAL RATE
OF TAX.
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Basic Change :
Sponsors: Sen. J. Boyd and Rep. L. Johnson
SB394 revises the method of collection of sales and use tax on motorboats. Arkansas law requires the
purchaser of a new or used motorboat to register the motorboat with the Department of Finance and
Administration (DFA) and obtain a certificate of number within 30 days of the date of purchase. SB394
would require the purchaser to pay sales or use tax directly to DFA instead of paying the tax to the
seller. The tax is due regardless of whether the motorboat is purchased from a boat dealer, an
individual, or another business, and the isolated sales exemption would not apply. A 10% penalty is
imposed for failure to pay the tax when due.
Under current law, tax is collected by a business engaged in selling motorboats and that business must
remit the taxes to DFA. SB394 requires the payment of sales and use tax on motorboats in the same
manner as currently required for payment of tax on motor vehicles and trailers.
SB394 provides that both new and used motorboats having a sales price less than $4,000 are exempt
from sales and use tax. The sale of a new motorboat is subject to the full state sales and use tax rate
of 6.5% if the total consideration for the sale is $4,000 or more. A reduced sales tax rate of 3.5% is
imposed on the sale of a used motorboat having a sales price of at least $4,000 but less than $10,000.
The 3.5% rate consists of the statutory rate of 2.875% and the 0.625% tax rate levied in the Arkansas
Constitution. The sale of a used motorboat having a sales price more than $10,000 is subject to the full
state sales and use tax rate.
When a used motorboat is traded in as partial payment on the sale of another new or used motorboat,
sales tax will be due on the difference between the consideration paid for the newly acquired
motorboat and the credit provided for the used motorboat that was taken in trade. If a used motorboat
is sold by private sale rather than traded in, the proceeds from the sale may be taken as a credit
against the purchase price of the replacement motorboat. The credit is only available if the used
motorboat is sold within 60 days prior to the purchase of the replacement motorboat and the purchaser
provides a fully completed bill of sale at the time of registration. No credit is available for taxes paid to
another state.
SB394 requires a dealership to register and remit sales tax on a service motorboat removed from its
inventory. A “service motorboat” is defined as a motorboat driven exclusively by an employee of the
dealership and used either to transport dealership customers or dealership parts and equipment.
SB394 provides a sales tax exemption for parts and accessories purchased by motorboat sellers for
resale or to be used to rebuild used motorboats. A motorboat sold by the original franchise dealer to
any other dealer, person, corporation, or other entity other than a franchise dealer of the same make of
motorboat is subject to sales tax.
SB394 is effective on the first day of the calendar quarter following the effective date of the act. For
purposes of the revenue impact below, an effective date of October 1, 2023 is assumed.
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4/2/2023 8:24 PM 1
 Department of Finance and Administration
Legislative Impact Statement
Bill: SB394
Bill Subtitle: TO AMEND THE LAW CONCERNING THE COLLECTION OF SALES AND USE TAX
ON MOTORBOATS; AND TO SUBJECT CERTAIN USED MOTORBOATS TO A SPECIAL RATE
OF TAX.
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Revenue Impact :
FY2024
Total Approximate State Sales and Use Tax Gain $ 5,225,699
(Estimated Effective Date 10/1/23 --- 8 months modified tax collection)
General Revenue - 4.5% $ 3,505,640
Property Tax Relief - .5% $ 389,516
Conservation Fund - .125% $ 97,379
Educational Adequacy Fund - .875% $ 681,652
Highway Fund - .5% $ 401,977
Educational Excellence Trust Fund - $ 0
Educational Adequacy (GR Transfer) - $ 0
State Central Services – $ 101,298
Constitutional Officers - $ 48,237
Total Approximate Local City and County Sales and Use Tax Gain $1,105,700
FY2025
Total Approximate State Sales and Use Tax Gain $ 7,838,548
(12 months modified tax collection)
General Revenue - 4.5% $ 4,718,942
Property Tax Relief - .5% $ 584,273
Conservation Fund - .125% $ 146,068
Educational Adequacy Fund - .875% $ 1,022,478
Highway Fund - .5% $ 602,965
Educational Excellence Trust Fund - $ 495,698
Educational Adequacy (GR Transfer) - $ 43,821
State Central Services – $ 151,947
Constitutional Officers - $ 72,536
Total Approximate Local City and County Sales and Use Tax Gain $ 1,658,550
Taxpayer Impact :
A taxpayer who purchases a new or used motorboat with a sales price of less than $4,000 will not pay
sales or use tax. A taxpayer who purchases a new motorboat with a sales price of $4,000 or more will
pay sales or use tax at the full 6.5% state tax rate. A taxpayer who purchases a used motorboat with a
sales price greater than $4,000, but less than $10,000, will pay sales or use tax at the reduced state
tax rate of 3.5%. A taxpayer who purchases a used motorboat with a sales price greater than $10,000
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4/2/2023 8:24 PM 2
 Department of Finance and Administration
Legislative Impact Statement
Bill: SB394
Bill Subtitle: TO AMEND THE LAW CONCERNING THE COLLECTION OF SALES AND USE TAX
ON MOTORBOATS; AND TO SUBJECT CERTAIN USED MOTORBOATS TO A SPECIAL RATE
OF TAX.
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will pay sales or use tax at the full 6.5% state tax rate. A taxpayer who purchases a motorboat will be
allowed to pay on the net difference between the total consideration for the new or used motorboat
sold and the credit for the used motorboat taken in trade. Sales tax will be paid at the time of
registration.
Resources Required :
Three additional audit staff will be required to administer this process. Staff would review motorboat
registration with trade-in information, determine eligibility of credit, and verify correct tax amount was
paid at the time of registration. This process will mirror the established motor vehicle process.
Anticipated personnel cost totaling $140,834.00 per year for one Tax Auditor and two Fiscal Support
Analysts. The Arkansas Integrated Revenue System (AIRS) would require programming at an
estimated cost of $40,000.00 and $2,000.00 annual maintenance.
Time Required :
Adequate time is provided for implementation.
Procedural Changes :
Computer programs, websites and training manuals will need to be updated to account for the change
in the sales tax thresholds for motorboats. Office of Motor Vehicle and State Revenue Office
employees will need to be educated on changes as well as the taxpayer community. Proper notice to
boat dealers and the Arkansas Game and Fish and Commission will be required.
Other Comments :
None.
Legal Analysis :
SB394 may benefit from an amendment to exclude motorboats from the provisions of § 26-52-401(22)
pertaining to used automobiles and aircraft.
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Statutes affected:
SB 394: 26-52-324, 26-52-301, 26-52-302, 26-52-601, 26-52-606, 26-52-510, 27-101-103, 26-53-150, 26-53-106, 26-53-107, 26-52-607, 26-53-126