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May 4, 2021

Arkansas law affirms that nonresident income tax applies only to wages for services physically performed within the state; 30-day reprieve from nonresident income tax struck from bill

Arkansas Governor Asa Hutchison has enacted legislation (S.B. 484) that, effective April 30, 2021, reverses the effect of a 2020 Department of Finance and Administration (DFA) legal opinion asserting that despite an employee's physical location within the state of Washington, her work for an Arkansas business met the definition of "carrying on an occupation within the state" thereby subjecting her wages to Arkansas state income tax. (See EY Tax Alert, 2020-2207.)

S.B. 484 also confirms that an out-of-state employer is required to withhold Arkansas income tax from the wages of Arkansas-based employees under the same requirements that apply to Arkansas employers. (DAF legislative impact statement for SB 484.)

Although not expressly set forth in prior Arkansas income tax law, the result of the legal opinion if applied to Arkansas income tax and/or withholding audits would have been akin to the "convenience of the employer rule" established by New York and several other states. (See Figure 4 of our special report for states that impose the convenience of the employer rule.)

30-day reprieve from nonresident income tax was struck from the bill S.B. 484 also contained a provision that would have excluded from the nonresident income tax obligation wages for services of 30 or fewer days in the calendar year. It was struck from the bill prior to passage. (S.B. 484 amendment form.)


Contact Information
For additional information concerning this Alert, please contact:
Workforce Tax Services - Employment Tax Advisory Services
   • Kristie Lowery (
   • Kenneth Hausser (
   • Debera Salam (


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