Taxing Caps and Gowns in Arkansas
- Mar 2, 2016 | Gail Cole
To students, it may seem like the last exam of the 2015-16 school year is decades away. School administrators, businesses, and event planners, however, know that graduation will be here in a flash. It’s time to start delving into details and making some arrangements.
One detail is the get-up, graduation caps and gowns. As many schools don’t provide these, students purchase, rent or lease them. One business that sells and rents graduation caps and gowns to students in Arkansas inquired about its tax responsibilities. The Arkansas Department of Finance and Administration provided the following information.
In Arkansas, the sale of graduation caps and gowns are subject to sales tax whether they’re purchased at a brick-and-mortar store or purchased from an out-of-state Internet vendor and delivered to the buyer or a local store for pick up. But when graduation attire is leased instead of purchased, taxation depends on the duration of the lease.
For a short-term lease (less than 30 days), sales tax is levied upon the amount of the lease payments “regardless of whether the sales tax was paid by the lessor at the time of purchase). Short-term leases are also subject to an additional 1% short-term rental tax (Ark. Code Ann. § 26-63-301(b)).
For long-term leases (30 days or more), “tax is based upon the amount of lease payments unless Arkansas sales or use tax was paid by the lessor at the time of purchase.” For long-term leases, the lessor has 2 options:
- Purchase the property tax-free as a sale for resale
- The lessor can then establish a sale-for-resale exemption
- Pay Arkansas tax on the purchase price of the property
Caps and gowns rented or leased from an out-of-state Internet vendor are also subject to sales tax.
Department of Finance and Administration opinions may only be relied upon by the company being addressed and only for a period of three years. However, they can be instructive. Read the opinion for additional details.
Businesses that sell and lease to consumers in multiple states may find it a challenge to keep track of all the different rates, rules and exemptions. Sales and use tax software (SaaS) simplifies sales and use tax filing and exemption certificate management. Learn more.
photo credit: USF Fall 2015 Commencement - 30 via photopin (license)
