The bill seeks to amend the Multistate Tax Compact and the Uniform Division of Income for Tax Purposes Act to modernize the apportionment of income from 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 outlines a phased approach for sourcing sales of tangible personal property, transitioning to sourcing entirely outside the state by 2030, and allows telecommunications service providers to elect a different sourcing method for a limited time.

Additionally, the bill amends the Arkansas tax code to clarify the allocation and apportionment of income for taxpayers, allowing the Secretary of the Department of Finance and Administration to establish alternative methods if existing provisions do not accurately reflect a taxpayer's business activity. It introduces a consistent burden of proof for taxpayers and the Secretary regarding allocation methods and protects taxpayers from penalties if they reasonably relied on previous methods. The bill also revises the definition of income for nonresident corporations and partnerships, stating that income will be taxable if Arkansas receipts exceed $250,000, regardless of physical presence. It replaces terms like "business income" with "apportionable income" and sets a new effective date of January 1, 2026, for tax years beginning on or after that date.

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