26 CAR § 100-142. Income from sources outside Arkansas — Arkansas Code § 26-51-504

(a) Calculating the credit — Arkansas Code § 26-51-504(a). (1)(A) When the gross income of an Arkansas resident includes income derived from sources outside the State of Arkansas, such as property or business activity, the Arkansas income tax liability shall first be computed as if all of the Arkansas resident's income was derived from sources within the State of Arkansas. (B) However, a credit shall be allowed against the resident's Arkansas income tax liability in the amount of any income tax actually owed by the resident for the tax year at issue to any other state or territory. (2)(A) Any credit given shall not be allowed to exceed what the tax would be on all the Arkansas resident's income, from wherever derived, if such tax was calculated using Arkansas income tax rates. (B) No credit shall be allowed against the resident's Arkansas income tax liability unless the resident can clearly show that he or she would be subject to double taxation on a portion of his or her income unless the credit is allowed. Example: Mr. and Mrs. Jones file a full-year resident return in the State of Arkansas. Mr. Jones works in Arkansas and earns thirty thousand dollars ($30,000). Mrs. Jones works in Oklahoma and also earns thirty thousand dollars ($30,000). Mrs. Jones paid one thousand five hundred dollars ($1,500) tax to Oklahoma. The Joneses file as status 4, married filing separate on same return. Mr. Jones Mrs. Jones Income $30,000.00 $30,000.00 Arkansas Tax $1,364.00 $1,364.00 Total Tax $2,728.00 Personal Credits ($40.00) Other State Tax Credit *($1,364.00) Tax Liability $1,324.00 *The other state tax credit is limited to what the amount of Arkansas tax would be if the Oklahoma income was earned in Arkansas. The Joneses must attach a copy of their Oklahoma tax return to their Arkansas tax return in order to receive this credit. (b) Prerequisites to claiming the credit — Arkansas Code § 26-51-504(b). Before a resident of Arkansas may properly claim a credit for income tax paid to another state or territory, he or she shall include with their Arkansas income tax return the following information: (1) The amount of income tax owed to any other state or territory; and (2) If so requested by the Individual Income Tax Section of the Department of Finance and Administration, information that shows in detail the amount of gross and net income derived by the Arkansas resident from sources outside the State of Arkansas. (c) Restriction of credit — Arkansas Code § 26-51-504(c). (1)(A) The credit against Arkansas individual income tax liability for income taxes actually owed to another state or territory shall only be available to Arkansas residents or part-year residents. (B) Nonresidents are not eligible for this credit. (2) The credit shall also be available to fiduciaries and partnerships residing or domiciled in Arkansas that either: (A) Are subject to Arkansas income tax; or (B) Have to report income for purposes of Arkansas income tax.