Wednesday, December 26, 2012

Attention Business Owners: The Deadline to Pay Arkansas Franchise Taxes is Approaching

In Arkansas, for-profit corporations must pay a franchise tax to keep the corporation's charter.  Essentially, a franchise tax is a "privilege tax" imposed on corporations and other business entities, including limited liability companies and other non-exempt companies, that transact business in Arkansas.  Ark. Code Ann. 26-54-101, et seq.  An example of a non-exempt company would be a non-profit corporation, a corporation that is exempt from federal income tax, or an organization formed pursuant to the Uniform Partnership Act (1996) or the Uniform Limited Partnership Act (2001). Ark. Code Ann. 26-54-102.

When it comes franchise tax compliance, there are a few deadlines to keep in mind.  All franchise taxes and reports due for the prior year must be submitted by May 1st.  In other words, the corporation's 2011 franchise taxes are due to the Secretary of State by May 1, 2012.  Otherwise, penalties will be levied and interest will accrue on the unpaid amounts, and the Secretary of State's office will change the corporation's status from being in "good standing" to "not current."

If franchise taxes are still not paid by December 31, the corporation loses its corporate charter on the following day. Ark. Code Ann. 26-54-111.  A corporate charter can be reinstated, but not until all franchise taxes, interest, and penalties are paid.  There are serious consequences to losing the corporate charter.  The Arkansas Court of Appeals once held that officers and directors of a corporation who actively participated in the operation of the corporation during the time when the corporate charter was revoked for failure to pay franchise taxes were individually liable for debts incurred during the period of revocation. Larzelere v. Reed, 35 Ark. App. 174, 816 S.W.3d 614 (1991).  

If the corporation has ceased doing business, it must formally dissolve to avoid the accruing of interest and additional franchise taxes for future years.  Prior to dissolution, the Secretary of State requires that any outstanding taxes, interest and penalties be paid.  The Secretary of State has a lien on all of the corporation's property until the amounts due are fully paid.  Ark. Code Ann. 26-54-107. Corporate dissolution must occur before January 1 to avoid additional franchise tax liability for the previous year.

Anyone can view an Arkansas corporation's compliance status by running a search on the Secretary of State's web page.

C. Michael Daily is an attorney with the long-established law firm of Daily & Woods, P.L.L.C.  Mr. Daily can be contacted by telephone at 479-242-3953, by email at mdaily@dailywoods.com, or by regular post at 58 South 6th Street, Fort Smith, Arkansas 72902.  You can follow Mr. Daily via social network using any of the social network links in the right hand column of the page.  Disclaimer:  This blog is for informational purposesis certainly not to be considered legal advice and is absolutely not substitute for any of the benefits that are associated with the attorney-client relationship.