The bill seeks to amend the Multistate Tax Compact and the Uniform Division of Income for Tax Purposes Act to modernize income apportionment for multistate operations. It redefines "business income" as "apportionable income," which includes all income that is apportionable under the U.S. Constitution and not allocated under state laws. A significant change is the shift from cost of performance to market-based sourcing for receipts from services and intangibles, ensuring income is allocated based on the market location of sales. The bill also introduces a phased approach for sourcing sales of tangible personal property, transitioning to complete sourcing outside the state by 2030, and allows telecommunications service providers to elect alternative sourcing methods for a limited time.

Additionally, the bill amends the Arkansas tax code to enhance the allocation and apportionment of income for taxpayers, granting the Secretary of the Department of Finance and Administration the authority to establish alternative methods if existing provisions do not accurately reflect a taxpayer's business activity. It specifies that the same burden of proof applies for both taxpayers and the Secretary when seeking adjustments to allocation methods, and it provides protections against penalties for taxpayers who relied on previous allocation provisions. The bill also revises the definition of income for nonresident corporations and partnerships, stipulating that income is taxable if Arkansas receipts exceed $250,000, regardless of physical presence. Furthermore, it repeals Arkansas Code 26-51-722, establishing a new effective date for the act for tax years beginning on or after January 1, 2026.

Statutes affected:
SB 567: 26-5-101, 26-51-202