This bill proposes significant amendments to the Multistate Tax Compact and the Uniform Division of Income for Tax Purposes Act, focusing on modernizing the apportionment of income from multistate operations. A key change is the redefinition of "business income" to "apportionable income," which includes all income that is apportionable under the U.S. Constitution and not allocated under state laws. The bill shifts the sourcing method for receipts from services and intangibles from a cost of performance approach to a market-based sourcing method, aiming to better reflect the economic realities of service delivery. It also clarifies that receipts from the sale of tangible personal property will be sourced based on delivery or shipping locations, and introduces a phased approach for sourcing receipts, ultimately leading to 100% sourcing outside the state by 2030.

Additionally, the bill allows the Secretary of the Department of Finance and Administration to establish alternative methods for income allocation and apportionment if existing provisions do not accurately represent a taxpayer's business activity. Taxpayers can petition for adjustments, with the burden of proof resting on the party seeking to change the allocation method. The bill also specifies that nonresident corporations or partnerships without a physical presence in Arkansas will be taxed if their Arkansas receipts exceed $250,000. 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, to ensure equitable treatment of taxpayers in the income allocation process.

Statutes affected:
SB 567: 26-5-101, 26-51-202
Act 719: 26-5-101, 26-51-202