Nonresidents or part-year residents — Arkansas Code § 26-51-435

# (a) Computing taxable income — Arkansas Code § 26-51-435(a) and (b)

(a) Computing taxable income — Arkansas Code § 26-51-435(a) and (b).

(1) Nonresidents or part-year residents of Arkansas shall compute their taxable income as if all their income was earned in Arkansas, despite the fact that a portion of their income may have been earned in another state or foreign country.

(2) Nonresident or part-year residents of Arkansas shall use Arkansas income tax rates to compute their Arkansas tax liability on their taxable income.

(3) The computed tax liability is then prorated to Arkansas based on a percentage calculated according to subsection (c) of this section.

# (b) Credit for income tax paid to another state — Arkansas Code § 26-51-435(c)

(b) Credit for income tax paid to another state — Arkansas Code § 26-51-435(c).

(1) After a nonresident or part-year resident's Arkansas tax liability has been computed as set forth in subsection (a) of this section, all allowable tax credits should be deducted to determine the amount of income tax due the State of Arkansas.

(2) However, credit may not be taken for individual income taxes paid to another state (or states) during the tax year at issue unless:

(A) The taxpayer is a resident of Arkansas; and

(B) Can clearly prove that he or she would be subject to double taxation if the other state tax credit was not allowed.

# (c) Computing percentage of AGI attributable to Arkansas — Arkansas Code § 26-51-435(d)

(c) Computing percentage of AGI attributable to Arkansas — Arkansas Code § 26-51-435(d). The percentage that Arkansas adjusted gross income (AGI) represents of all AGI received by a nonresident or part-year resident during the tax year shall be computed as follows:
AGI from Arkansas Sources  = % AGI from All Sources

# (d) Calculating Arkansas income tax due — Arkansas Code § 26-51-435(e)

(d) Calculating Arkansas income tax due — Arkansas Code § 26-51-435(e). In order to determine the proper amount of income tax that must be paid to the State of Arkansas by a nonresident or part-year resident, the tax shall be computed as follows:
Tax liability minus allowable credits as
X
Percentage (%) as determined in = Tax Due, set forth in subsection (b) of this section subsection (c) of this section

# (e) Deductions — Passive activity loss — Arkansas Code § 26-51-436(2)

(e) Deductions — Passive activity loss — Arkansas Code § 26-51-436(2).
(1)(A) If all gain or loss realized on the disposition of an entire interest in a passive activity is recognized, then the excess of any loss from the activity for the tax year of disposition (including losses carried over from earlier years) over any net income or gain for the tax year from all other passive activities (including losses carried over from earlier years) is treated as a loss that is not from a passive activity.

(B) I.R.C. § 469(g)(1)(A).

(2) As such, any gain from disposing of a passive activity would offset any loss from the activity for the tax year of the disposition.

(3) The balance of the loss would then be applied first against any net income or gain from other passive activities, and finally against nonpassive income.

# (f) Passive activity credits — Oil and gas properties — Arkansas Code § 26-51-436(2)

(f) Passive activity credits — Oil and gas properties — Arkansas Code § 26-51-436(2).
(1)(A) Passive activity credits can only be used to offset taxes allocable to income from passive activities.

(B) A working interest in oil or gas property that the taxpayer holds either directly or through an entity that does not limit his or her liability is not a passive activity.

(C) However, if the taxpayer has any loss for any tax year from such an interest, then any net income from the property for any later tax year is treated as income that is not from a passive activity, notwithstanding that the activity may otherwise have become passive with respect to the taxpayer.

(D) I.R.C. § 469(c)(3)(B).

(2) The 1996 act provides that if, under the above rule, the net income from a working interest in an oil or gas property is treated as income that is not from a passive activity for any tax year, then any credits attributable to the property for that year are not treated as credits from a passive activity.

(3) The credits are treated as not from a passive activity even for a tax year in which the activity is no longer treated as not being a passive activity (i.e., the activity has become passive with respect to the taxpayer).