Arkansas Considers Certain Audio Production Services a Taxable Digital Product

February 1, 2019

Arkansas, like some other states, now taxes certain digital audio and/or digital products, and companies providing services in this industry may find themselves required to collect and remit sales tax for certain transactions.

Historically, sales tax has applied almost universally to items of tangible personal property. As products which have traditionally been delivered in tangible form have moved to digital delivery, many states have sought to expand their definitions of what is considered tangible property or specifically identify digital products as taxable, such as downloaded/streaming movies, music and e-books.

Arkansas enacted new law in 2017 to identify specified digital products as subject to sales tax.[1] Under this law, digital audio works, digital audio-visual works, and digital books are all considered digital products subject to tax (1) when sold to a purchaser who is an end user, (2) when the seller grants the right of permanent use of the specified digital products to the end user, and (3) that use is not conditioned upon continued payment by the purchaser.[2]

In a recent Arkansas Revenue Legal Counsel ruling,[3] the Arkansas Department of Finance and Administration interpreted this law to also cover certain taxable audio production services that result in a transfer of digital goods. This ruling was the result of a request by an Arkansas business for clarity on how the digital goods law would be applied to its activities. The taxpayer records and produces audio for broadcast, internal business and social media advertising. Arkansas law defines taxable digital audio works as works that result from the fixation of a series of musical, spoken or other sounds.[4]

In this particular case, the ruling covered two specific activities determined to be taxable digital audio works: (1) recording and editing voice talent and (2) mixing audio to create finished advertising spots.

  • The first type of “audio work” analyzed by the state was the taxpayer’s recording and editing of professional voice talent for use in radio, TV and social media. The output from this activity was identified to result from a fixation of a series of sounds created by the seller and thus it constituted a taxable digital audio work.
  • The second type of “audio work” analyzed in the ruling was the creation and/or selection of music and effects that are ultimately mixed to create finished advertising spots to be used in radio, TV and social media. Often, the production company received audio works that it did not create from its customer that the production company edits. Arkansas identified that in cases where only services were performed on the audio works provided by the customer, the customer has merely paid for a nontaxable service provided to a digital audio work. However, if any music or sound effects (which are also digital audio works) are added by the production company to the customer’s provided audio, then the addition of this content makes the transfer a taxable sale of a digital product.

In both cases, the state made clear that the transfer of the digital audio works is taxable only when sold to an end-user, and that the purchaser would be considered an end-user if the contract/agreement did not specifically give the purchaser the right to redistribute the work.

Over the past several years, many states have enacted laws taxing digital products that contain similar or identical definitions as Arkansas. It is important for businesses that perform similar production services resulting in digital products to analyze their transactions to determine whether they could be considered taxable based on an interpretation of the state tax rules similar to this Arkansas ruling.

Aprio’s SALT team is experienced in understanding the different positions that states may take with regard to a given transaction, allowing us to fully analyze our clients’ sales and use tax obligations and identify the proper sales and use tax treatment. We continue to monitor these and other important state tax issues, and we will include any significant developments in future issues of the Aprio SALT Newsletter.

Contact Jeff Glickman, partner-in-charge of Aprio’s SALT practice, at for more information.

This article was featured in the January 2019 SALT Newsletter.

[1] Act 141, Arkansas 91st General Assembly (2017)

[2] AR Code Ann. §26-52-301(1)(B)

[3] AR Revenue Legal Counsel Opinion Number 20180512

[4] AR Code Ann. §26-52-103(9)

Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.

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About the Author

Jeff Glickman

Jeff Glickman is the partner-in-charge of Aprio, LLP’s State and Local Tax (SALT) practice. He has over 18 years of SALT consulting experience, advising domestic and international companies in all industries on minimizing their multistate liabilities and risks. He puts cash back into his clients’ businesses by identifying their eligibility for and assisting them in claiming various tax credits, including jobs/investment, retraining, and film/entertainment tax credits. Jeff also maintains a multistate administrative tax dispute and negotiations practice, including obtaining private letter rulings, preparing and negotiating voluntary disclosure agreements, pursuing refund claims, and assisting clients during audits.

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