Arkansas: Rent-to-Own Property Subject to Short-Term Rental Tax

Listen to a brief overview of state tax developments this week, including Arkansas, or read full Arkansas development below.

Detailed Arkansas Development

The Arkansas Supreme Court recently held that rent-to-own transactions of furniture and electronics were subject to Arkansas’s short-term rental excise tax. The taxpayer operated retail stores in Arkansas where it offered customers the opportunity to rent to own certain tangible personal property.  The taxpayer’s rental-purchase agreement required customers to select an initial rental term of monthly, semi-monthly, or weekly. At the end of each term, the customer would either terminate the rental agreement or renew by making an advance payment.  After making a predetermined number of payments, title to the property would transfer to the customer. The Arkansas Department of Finance and Administration (DFA) audited the taxpayer and assessed the short-term rental tax on those transactions where customers had selected a weekly or semi-monthly payment period. After the taxpayer lost its internal appeals and a trial court ruled in the DFA’s favor, the matter came before the Arkansas Supreme Court.

Under Arkansas law, the short-term rental tax is imposed on “a rental or lease of tangible personal property for a period of less than thirty (30) days to a single consumer.” However, a “lease” or “rental” does not include a “transfer of possession or control of tangible personal property under an agreement that requires the transfer of title upon completion of required payments….” The taxpayer argued that its transactions met the exclusion or, in the alternative, that these were not short-term rentals because there was undisputed evidence that customers almost always renewed their initial lease terms beyond a 30-day period. The court, strictly construing the short-term rental imposition statute, disagreed. In its view, the rental transactions with a weekly and semimonthly term were subject to the short-term rental tax as these transactions fell within the plain and ordinary meaning of “a period of less than thirty days.” For more information on Rent-a-Center East Inc v. Walther, please contact Michael Andruchek.

This Week's Developments

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Sarah McGahan

Sarah McGahan

Managing Director, State & Local Tax, KPMG US