Arkansas ~ Personal Income Tax: Border City Tax Exemption and Business Deductions Denied

CCH Tax Day Report

An Arkansas couple who filed separate personal income tax returns was properly denied the border city tax exemption and certain business deductions because they were not domiciled in a border city and had incurred nondeductible personal expenses relating to their border city residence. Generally, only bona fide residents who are “domiciled” in a border city may claim the border city exemption. Here, although the taxpayer-husband acquired an apartment in the border city, he failed to show that he was domiciled there and that he had abandoned his earlier residence in another city. The taxpayers’ vehicle registrations and driver’s licenses were registered in a different city where they originally resided, and they had claimed a homestead tax credit on their residence in that city. Even though the border city exemption claim form does not explicitly state that a taxpayer must be domiciled in a border city, nonetheless, a taxpayer is statutorily required to be domiciled in a border city to qualify for the exemption.

As the taxpayer-husband resided in the border city where his employer was located, he was not “away from home” when he incurred the rent, utility, meals, and mileage expenses related to his border city apartment. Accordingly, those expenses were not deductible as expenses incurred while traveling for business purposes. Finally, the taxpayers’ deduction claims for a home office in the border city and business use of their mobile phones were denied as they failed to establish the percentage of business use.

Administrative Decision No. 16-292, Arkansas Department of Finance and Administration, Office of Hearings and Appeals, August 10, 2016, ¶400-712

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