Arkansas Composite Return: Withholding, Filing, and Penalties

An Arkansas composite return lets a pass-through entity file one state income tax return and pay Arkansas tax on behalf of its nonresident members, using Form AR1000CR. The tax is calculated at the state’s top individual rate, currently 3.9% for 2025, applied to each participating member’s share of Arkansas-source income.¹ The return and payment are due on the 15th day of the fourth month after the entity’s tax year ends, which means April 15 for calendar-year filers.² Filing the composite return satisfies the entity’s separate withholding obligation for every member included.

Who Has to File or Withhold

Arkansas requires pass-through entities with nonresident members to either withhold state income tax on distributions or file a composite return on those members’ behalf. A “pass-through entity” means any business that is not taxed as a corporation for federal or Arkansas income tax purposes: S corporations, general and limited partnerships, LLPs, LLCs, and trusts that pass income through to their owners.² An entity that has elected corporate taxation falls outside these rules.

A “nonresident member” can be an individual partner, shareholder, or beneficiary, or another pass-through entity based outside Arkansas. The compliance duty sits with the entity. The nonresident member does not have to arrange withholding independently.

The Withholding Rate and the Composite Rate

When an entity withholds instead of filing composite, it withholds at the highest rate under the applicable Arkansas income tax statutes on each nonresident member’s share of Arkansas-source income.² For individual members that top rate is 3.9% in 2025, following Act 1 of the Second Extraordinary Session of 2024.¹ For corporate members the rate is 4.3%.³ The composite return uses the same top-rate calculation.

Once the entity withholds or pays composite tax, the member is credited with that payment on any Arkansas return they file, and the entity is not liable to the member for the amount withheld.

Tiered Pass-Through Structures

If one pass-through entity distributes Arkansas-source income to another pass-through entity, the upper-tier entity is not required to withhold on that inter-entity distribution.⁴ The lower-tier entity still has to withhold on its own distributions to nonresident members, but any tax the upper-tier did withhold is credited against the lower-tier’s obligation.²

When Withholding Isn’t Required

Arkansas law recognizes six situations where the entity does not have to withhold on a nonresident member’s share:

The member’s share of Arkansas-source income from the entity is less than $1,000 for the year.²
The Secretary of the Department of Finance and Administration determines that a particular member’s income is not subject to withholding.
The member elects to be included in the entity’s composite return on Form AR1000CR.
The entity is a publicly traded partnership under 26 U.S.C. § 7704(b) that agrees to file an annual information return listing each member with annual Arkansas income above $500.⁵
The member signs a filing agreement, on forms prescribed by the Secretary, to timely file an Arkansas return, pay all tax due, and submit to Arkansas jurisdiction for collection. The department can revoke this exception if the member breaks the agreement.²
The member’s income is exempt from Arkansas income tax under § 26-51-202(e).

How the Composite Return Is Calculated

The AR1000CR reports the total Arkansas-source income distributed or credited to participating members and the tax owed on it at the top rate. The calculation is deliberately flat. The tax due on a composite return cannot be reduced by any individual member’s Arkansas business incentive credits, deductions, or adjustments.⁶ Loss carryovers from prior years generally cannot be applied either.

Being included in the composite doesn’t lock the member out of filing their own Arkansas return. A nonresident member who was covered by a composite return may still file individually on Form AR1000NR and take credit for the tax the entity already paid on their behalf.⁷

Should a Member Join the Composite or File Individually

The composite return is a convenience choice with real trade-offs.

It removes the need for the nonresident member to file a separate Arkansas return, cutting preparation costs on small or single-source income.
Participation satisfies the entity’s withholding obligation for that member, so it simplifies compliance on both sides.
The composite applies the top marginal rate with no graduated brackets, so a member whose Arkansas income would otherwise sit in lower brackets pays more than they would filing individually.
Individual deductions, adjustments, and Arkansas business incentive credits cannot be claimed on the composite. Members with meaningful credits almost always come out ahead on an individual return.
Prior-year loss carryovers generally can’t be used on the composite. Members with accumulated losses should look at filing AR1000NR to apply those losses against current income.

For a member with modest, straightforward Arkansas-source income and no credits to claim, the composite is usually the cleaner path. For a member with credits, losses, or income sitting in lower brackets, individual filing tends to win.

AR-1099PT Reporting to Members

Any pass-through entity that withholds Arkansas tax or files a composite return has to give each affected nonresident member Form AR-1099PT. The form shows the member’s share of Arkansas-source income, the tax withheld, and the tax paid through the composite return.⁸

Two copies go to the nonresident member and the entity keeps one. Delivery to members is due on the 15th day of the third month after the entity’s tax year closes, which is March 15 for calendar-year filers. The entity does not send a copy to the Individual Income Tax Section unless the department asks for one.

Filing Deadline and Payment

The composite return and any withholding remittance are due on the 15th day of the fourth month after the entity’s tax year ends.² Calendar-year entities file by April 15. The return must be filed electronically in the format the Secretary prescribes, and it has to show total income distributed or credited to nonresident members alongside total tax withheld. Payment goes in with the return.

The staggered timing is deliberate. The AR-1099PT reaches members roughly a month before the composite return itself is due, so members have their numbers in hand for their own planning.

Penalties for Late Filing or Failure to Withhold

The Arkansas Tax Procedure Act governs enforcement. A late-filed return draws a penalty of 5% of the tax owed for each month or partial month it is overdue, capped at 35%.⁹ Interest runs on unpaid tax at 10% per year. The entity, not the member, bears the liability.

If the department finds that a nonresident member who signed a filing agreement is not keeping to its terms, it can revoke that member’s exemption from withholding and notify the entity that future distributions require withholding again.²

1
Arkansas Department of Finance and Administration. Arkansas Individual Income Tax Instructions 2025
2
Justia. Arkansas Code 26-51-919 – Pass-Through Entities
3
Arkansas Department of Finance and Administration. Arkansas Composite Return Filing and Withholding Guidelines
4
Legal Information Institute. Arkansas Code of Regulations 006.05.07 – Rule 2006-3 – Withholding on Nonresident Members of Pass-Through Entities – Section: Withholding Not Required
5
Code of Arkansas Rules. Arkansas Code of Rules 26 CAR 63-105 – Withholding Not Required
6
Code of Arkansas Rules. Arkansas Code of Rules 26 CAR 63-111 – Deductions, Adjustments, and Credits
7
FindLaw. Arkansas Code Title 26 Taxation 26-51-919 – Pass-Through Entities
8
Arkansas Department of Finance and Administration. AR-1099PT Form
9
Arkansas Department of Finance and Administration. Penalty and Interest Charges