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Arkansas | #36 Overall
Arkansas‘s tax system ranks 36th overall on the 2025 State Tax Competitiveness Index. Arkansas ranks poorly on the Index despite multiple rounds of income tax rate reductions since 2015 and a resulting low top marginal individual income tax rate, due to a range of structural shortcomings in the state’s tax code. For instance, Arkansas only allows corporations’ net operating losses (NOLs) to be carried forward for 8 years, while most states either allow 20-year or uncapped carryforward periods. The state stands alone in having two different income tax rate schedules depending on taxpayer income.
Arkansas also has the third-highest combined state and local sales tax rate in the nation at 9.46 percent. The state also imposes a tax on capital stock, at 0.3 percent of the apportioned net worth of corporations. Such taxes are increasingly rare, and Arkansas’s tax rate is the highest in the nation. The state also assesses property tax on businesses’ inventory, making the state even more of an outlier. Both taxes are assessed whether the firm makes a profit or loss in a particular tax year, which is harmful to small businesses seeking to scale up their operations, capital-intensive firms, and all firms during an economic decline.
| Category | Rank | Rank Change | Score |
|---|---|---|---|
| Overall | 36 | -2 | 4.85 |
| Corporate Taxes | 15 | -4 | 5.50 |
| Individual Income Taxes | 39 | 0 | 4.66 |
| Sales Taxes | 44 | 0 | 3.89 |
| Property Taxes | 19 | -6 | 5.23 |
| Unemployment Insurance Taxes | 11 | -9 | 5.61 |
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