Stricken language would be deleted from and underlined language would be added to present law.
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State of Arkansas 1
94th General Assembly A Bill 2
Regular Session, 2023 SENATE BILL 482 3
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By: Senator J. Dismang 5
By: Representative Eaves 6
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For An Act To Be Entitled 8
AN ACT TO AMEND THE INCOME TAX ACT OF 19 29; TO 9
PROVIDE AN APPORTION MENT FORMULA FOR THE INCOME OF 10
RAILROADS; TO AMEND THE MULTISTATE TAX C OMPACT AND 11
THE DIVISION OF INCO ME FOR TAX PURPOSES ACT 12
CONCERNING THE DIVIS ION OF INCOME FOR RA ILROADS; AND 13
FOR OTHER PURPOSES. 14
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Subtitle 17
TO AMEND THE INCOME TAX ACT OF 1929; AND 18
TO PROVIDE AN APPORTIONMENT FORMULA FOR 19
THE INCOME OF RAILROADS. 20
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BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF ARKANSAS: 23
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SECTION 1. DO NOT CODIFY. Legislative findings and intent. 25
(a) The General Assembly finds that: 26
(1) The Department of Finance and Administration promulgated 27
Corporation Income Tax Rule 1.26 -51-204 to require a railroad to apportion 28
its net operating income attributable to this state by multiplying the net 29
income by a fraction, the numerator of which is the property factor plus the 30
payroll factor plus the sales factor doubled and the denominator of which is 31
four (4); and 32
(2) Acts 2019, No. 822, §§ 2 and 7, amended the Multist ate Tax 33
Compact, § 26-5-101 et seq., and the Uniform Division of Income for Tax 34
Purposes Act, § 26-51-701 et seq., to adopt sales factor apportionment for 35
purposes of calculating Arkansas corporate income tax liability and 36 SB482
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eliminated inclusion of the prope rty and payroll factors for tax years 1
beginning on or after January 1, 2021. 2
(b) It is the intent of the General Assembly that, for tax years 3
beginning on or after January 1, 2023, a railroad shall apportion and 4
allocate its income using one (1) of the a pportionment methods provided in 5
this act. 6
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SECTION 2. Arkansas Code § 26 -5-101, Article IV, paragraph 2, 8
concerning the division of income under the Multistate Tax Compact, is 9
amended to read as follows: 10
2. Any taxpayer having income from business a ctivity which is 11
taxable both within and without this state, other than activity as a railroad 12
or public utility or the rendering of purely personal services by an 13
individual, shall allocate and apportion his net income as provided in this 14
article. If a taxpayer has income from business activity as a public utility 15
but derives the greater percentage of his income from activities subject to 16
this article, the taxpayer may elect to allocate and apportion his entire net 17
income as provided in this article. 18
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SECTION 3. Arkansas Code § 26 -51-204 is amended to read as follows: 20
26-51-204. Railroads and public utilities — Apportionment. 21
(a) Every railroad or other public utility, whether organized under 22
the laws of this state or any other state or the federal go vernment, shall be 23
subject to the provisions of the Income Tax Act of 1929, § 26 -51-101 et seq., 24
and shall pay the state income tax levied by this subchapter upon that 25
proportion of its entire net income applicable to the State of Arkansas. 26
(b)(1) An organization operating a railroad partly within this state 27
and partly without this state shall apportion the net operating income 28
attributable to this state by multiplying the organization's income by: 29
(A) The sales factor described in subdivision (b)(2) of 30
this section; or 31
(B) A fraction, the numerator of which is the sum of the 32
property factor described in subdivision (b)(3) of this section, the payroll 33
factor described in subdivision (b)(4) of this section, and two (2) times the 34
sales factor describ ed in subdivision (b)(2) of this section, and the 35
denominator of which is four (4). 36 SB482
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(2) The sales factor is a fraction, the numerator of which is 1
the sum of the taxpayer's gross revenue from within this state and the 2
proportionate part of the taxpayer's interstate revenues determined on the 3
basis of the taxpayer's miles operated within this state compared to the 4
taxpayer's total miles operated within the railway system, and the 5
denominator of which is the total operating revenues of the taxpayer. 6
(3)(A) The property factor is a fraction, the numerator of which 7
is the average value of the taxpayer's real and tangible personal property 8
owned or rented and used in this state during the tax year, and the 9
denominator of which is the average value of all the taxpayer's real and 10
tangible personal property owned or rented and used during the tax year. 11
(B) The average value of the taxpayer's operating 12
equipment, including without limitation locomotives, freight and passenger 13
cars, and work and miscellaneous equipment, shall be apportioned to this 14
state in the ratio of the total miles the taxpayer's property is operated 15
within this state to the total miles the taxpayer's property is operated 16
throughout the railway system. 17
(C) The average value of the taxpayer's real and tangible 18
personal property owned in this state is the average of the original cost of 19
the real and tangible personal property at the beginning and the end of the 20
tax year. 21
(D) The taxpayer's real and tangible personal property 22
rented and used in this state is valued at eight (8) times the net annual 23
rental amount. 24
(4) The payroll factor is a fraction, the numerator of which is 25
the sum of the compensation paid by the taxpayer for services performed 26
entirely within the state and a p roportionate part of the compensation paid 27
by the taxpayer for services performed both within and without the state 28
based on the ratio of the taxpayer's total miles traveled within the state to 29
the taxpayer's total miles traveled, and the denominator of wh ich is total 30
compensation paid by the taxpayer during the tax year. 31
(5) As used in this subsection: 32
(A) “Nonoperating income” means all income other than 33
operating income; and 34
(B) “Operating income” means income arising from 35
transactions and activity in the regular course of the taxpayer’s trade or 36 SB482
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business and includes income from tangible and intangible property if the 1
acquisition, management, and disposition of the property constitute integral 2
parts of the taxpayer’s regular trade or business operations. 3
(c) The Secretary of the Department of Finance and Administration may 4
promulgate rules to administer this section. 5
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SECTION 4. Arkansas Code § 26 -51-702 is amended to rea d as follows: 7
26-51-702. Apportionment of net income authorized. 8
Any taxpayer having income from business activity which is taxable both 9
within and without this state, other than activity as a railroad or public 10
utility or the rendering of purely person al services by an individual, shall 11
allocate and apportion his net income as provided in this Act. 12
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SECTION 5. DO NOT CODIFY. TEMPORARY LANGUAGE. Rules. 14
Any rules or provisions of rules adopted by the Department of Finance 15
and Administration that conf lict with this act are void, including without 16
limitation the conflicting provisions of Corporation Income Tax Rule 1.26 -51-17
204. 18
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SECTION 6. EFFECTIVE DATE. Sections 1 -5 of this act are effective for 20
tax years beginning on or after January 1, 2023. 21
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