Arkansas cities may levy a local tax on prepared food, known variously as a hospitality tax, an advertising and promotion tax, or a hotel, motel and restaurant tax. Little Rock levies 2% on prepared food. Fayetteville levies 2% under its HMR tax. The important detail is what these taxes exclude. In Little Rock the hospitality tax does not apply to mixed drinks.
What is the A and P tax and who collects it?
Advertising and promotion taxes are levied by a city and are typically administered by that city's advertising and promotion commission, not by the state. The revenue generally funds tourism and promotion.
Three things follow for an operator. The rate is set locally. It usually applies to prepared food and not to everything you sell. And it is often remitted separately from your state and local sales tax. That last one drives a reporting requirement: your POS has to report the base the hospitality tax applied to, separately from your total taxable sales.
How do Little Rock and Fayetteville differ?
Little Rock applies 2% on prepared food, which brings food to a combined 10.625%. It does not apply to mixed drinks, which is why liquor in Little Rock stacks to 32.625% by an entirely separate route.
Fayetteville applies a 2% hotel, motel and restaurant tax on prepared food, bringing food to 11.75%. Separately it applies a 5% supplemental beverage tax on spirits which excludes wine, beer and malt beverages under 5% alcohol by weight, bringing a cocktail to 16.75% while a beer stays at 11.75%.
Two cities, two structures, and no way to derive one from the other. This is why a remotely programmed menu configured against a generic Arkansas rate is wrong more often than it is right.
Which items does the hospitality tax miss?
Generally the ones that are not prepared food. Retail merchandise, packaged goods sold to go, gift cards at the point of sale, and in Little Rock's case mixed drinks. Service charges and gratuities are treated under their own rules and should be confirmed with your accountant.
Every one of those exceptions is a separate tax group or a separate item level setting in the POS. The failure mode is subtle: nothing breaks, no error appears, the ticket just quietly carries the wrong amount on a handful of items, several hundred times a week.
It does not apply to mixed drinks, which is the detail most systems miss.
What should you ask before you sign with a POS vendor?
Ask three questions. Can you show me a test ticket with a food item, a cocktail and a retail item, each carrying a different rate? Can you produce a report that separates the base subject to the hospitality tax from total taxable sales? And who configures this, you or me?
If the answer to the last question is that you configure it yourself from a help article, price that into the offer. Several hours of careful work, and the cost of getting it wrong keeps running.
Questions restaurant owners ask
Is the hospitality tax the same in every Arkansas city?
No. Cities set it locally, they differ on both the rate and what it applies to, and some do not levy one at all. Confirm your own city's rate and its exclusions with the city or its advertising and promotion commission. Do not assume a neighbouring city's figure applies to you.
Do I file the hospitality tax with Arkansas DFA?
Typically not. A and P and hospitality taxes are generally remitted to the city or its commission, separately from state and local sales tax filed with DFA. That means two returns and two sets of numbers, which is why the reporting split out of your POS matters.
Does the hospitality tax apply to catering and off site events?
It depends on the city's ordinance and on where the food is provided. Catering is one of the areas where local rules diverge most. If catering is a meaningful part of your revenue, confirm it specifically. Do not assume it follows your dining room.
Vendor pricing and tax rates change without notice. Confirm current figures with the vendor, the city or your accountant before you rely on them. Not tax, legal or accounting advice.
Every number on this page traces to a primary source
- Little Rock combined rates on prepared food and mixed drinkslittlerock.gov / tax information
- Arkansas state sales and use tax rate and mixed drink tax ratesdfa.arkansas.gov / sales use tax
- Fayetteville HMR and supplemental beverage tax rates and exclusionsfayetteville-ar.gov / Sales Tax
- Arkansas state sales and use tax ratedfa.arkansas.gov / sales use tax