Ark. Code Ann. § 26-51-427 (2026)

In addition to other deductions allowed by this chapter, there is allowed as a deduction from gross income a net operating loss carryover under the following rules:

1. 1. The net operating loss for any taxable year may be carried over to the next-succeeding taxable year and annually thereafter for a total period of three (3) years next succeeding the year of the net operating loss or until the net operating loss has been exhausted or absorbed by the taxable income of any succeeding year, whichever is earlier, if the net operating loss occurred in an income year beginning before January 1, 1987. The net operating loss deduction shall be carried forward in the order stated in this subdivision (1)(A).
   2. The net operating loss for any year ending on or after the passage of the Income Tax Act of 1929, § 26-51-101 et seq., and for any succeeding taxable year before January 1, 2020, may be carried over to the next-succeeding taxable year and annually thereafter for a total period of five (5) years next succeeding the year of the net operating loss or until the net operating loss has been exhausted or absorbed by the taxable income of any succeeding year, whichever is earlier, if the net operating loss occurred in an income year beginning on or after January 1, 1987, and before January 1, 2020. The net operating loss deduction shall be carried forward in the order stated in this subdivision (1)(B).
   3. 1. For net operating losses occurring in taxable years beginning on or after January 1, 2020, the net operating loss may be carried over to the next succeeding taxable year and annually thereafter for the following number of years next succeeding the tax year of the net operating loss or until the net operating loss has been exhausted or absorbed by the taxable income of a succeeding year, whichever is earlier:
         1. For net operating losses occurring in the tax year beginning January 1, 2020, a total period of eight (8) years; and
         2. For net operating losses occurring in tax years beginning on or after January 1, 2021, a total period of ten (10) years.
      2. The net operating loss deduction shall be carried forward in the order stated in this subdivision (1)(C).
   4. As used in this section, “taxable income” or “net income” means the net income computed without benefit of the deduction for income taxes, personal exemptions, and credit for dependents. The net income of the taxable period to which the net operating loss deduction, as adjusted, is carried is the net income before the deduction of federal income taxes, personal exemption, and credit for dependents. The income taxes, exemptions, and credits described in this subdivision (1)(D) shall not be used to increase the net operating loss that may be carried to any other taxable period.
   5. 1. As used in this section, “qualified medical company” means a corporation engaged in:
         1. Research and development in the medical field; and
         2. The manufacture and distribution of medical products, including therapeutic and diagnostic products.
      2. In the case of a qualified medical company, a net operating loss for any taxable year shall be a net operating loss carryover to each of the fifteen (15) taxable years following the taxable year of the loss.
      3. If the qualified medical company is a Subchapter S corporation, the pass-through provisions of § 26-51-409, as in effect for the taxable year of the net operating loss, are applicable.
      4. The net operating loss provisions stated in this subdivision (1)(E), which resulted from the operation of a qualified medical company, are effective for taxable years beginning on and after January 1, 1987;
2. As used in this section, “net operating loss” means the excess of allowable deductions over gross income for the taxable year, subject to the following adjustments:
   1. There shall be added to gross income all nontaxable income not required by law to be reported as gross income less any expenses properly and reasonably incurred in earning nontaxable income, which expenses would otherwise be nondeductible;
   2. In the case of a taxpayer other than a corporation, deductions, not including federal income taxes, not attributable to the operation of the trade or business, are eliminated from the deductions otherwise allowable for the taxable year to the extent that they exceed gross income not derived from trade or business. Personal exemptions and credit for dependents are not a deduction for the purpose of computing a net operating loss;
   3. A net operating loss deduction shall not be allowed; and
   4. In the case of a taxpayer other than a Subchapter C corporation, as defined in 26 U.S.C. § 1361, as in effect on January 1, 1985:
      1. The amount deductible on account of losses from sales or exchanges of capital assets shall not exceed the amount includable on account of gains from sales or exchanges of capital assets; and
      2. The deduction for long-term capital gains provided by 26 U.S.C. § 1202 [repealed], as in effect on January 1, 1985, shall not be allowed; and
3. In the case of the acquisition of assets of one (1) corporation by another corporation, the acquiring corporation shall succeed to and take into account any net operating loss carryover apportionable to Arkansas, under the Uniform Division of Income for Tax Purposes Act, § 26-51-701 et seq., that the acquired corporation could have claimed had it not been acquired, subject to the following conditions:
   1. The net operating loss may not be carried forward to a taxable year that ends more than three (3) years after the taxable year in which the net operating loss occurred if the net operating loss occurred in an income year beginning before January 1, 1987;
   2. The net operating loss may not be carried forward to a taxable year that ends more than five (5) years after the taxable year in which the net operating loss occurred if the net operating loss occurred in an income year beginning on or after January 1, 1987, and before January 1, 2020;
   3. The net operating loss may not be carried forward to a taxable year that ends more than the number of years stated in subdivision (1)(C) of this section after the taxable year in which the net operating loss occurred if the net operating loss occurred in an income year beginning on or after January 1, 2020; and
   4. The net operating loss may be claimed only when the ownership of both the acquired and acquiring corporations is substantially the same in that not less than eighty percent (80%) of the voting stock of each corporation is owned by the same person or, before the acquisition, the acquiring corporation owned at least eighty percent (80%) of the voting stock of the acquired corporation. The carryover losses are allowed only in those cases in which the assets of the corporation going out of existence earn sufficient profits apportionable to Arkansas under the Uniform Division of Income for Tax Purposes Act, § 26-51-701 et seq., in the post-merger period to absorb the carryover losses claimed by the surviving corporation.

History. Acts 1929, No. 118, Art. 3, § 13; Pope's Dig., § 14036; Acts 1957, No. 147, § 1; 1975, No. 676, § 1; 1979, No. 740, § 1; 1985, No. 848, § 2; 1985 (1st Ex. Sess.), No. 20, § 2; 1985 (1st Ex. Sess.), No. 32, § 2; A.S.A. 1947, § 84-2016; Acts 1987, No. 382, §§ 18, 19; 1989, No. 615, § 1; 1995, No. 586, § 4; 2019, No. 822, § 5.

A.C.R.C. Notes. Acts 2019, No. 822, § 1, provided: “Legislative findings and intent.

“(a) The General Assembly finds that:

“(1) The Arkansas Tax Reform and Relief Legislative Task Force was charged with:

“(A) Examining and identifying areas of potential tax reform within the tax laws; and

“(B) Recommending legislation to the General Assembly to:

“(i) Modernize and simplify the Arkansas tax code;

“(ii) Make Arkansas's tax laws competitive with tax laws in other states;

“(iii) Create jobs; and

“(iv) Ensure fairness to all taxpayers;

“(2) The state's income tax laws should be amended to modernize and simplify the tax code, increase Arkansas's competitiveness, create jobs, and ensure fairness to all taxpayers;

“(3) The inability to effectively collect any Arkansas sales or use tax from remote sellers who deliver tangible personal property, other property subject to Arkansas sales and use tax, or services directly into the state is seriously eroding the sales and use tax base of this state, causing revenue losses and imminent harm to the state through the loss of critical funding for state and local services;

“(4) The harm from the loss of revenue is especially serious in Arkansas because sales and use tax revenue is essential in funding state and local services;

“(5) Despite the fact that a use tax is owed on tangible personal property, certain other property, or services delivered for use in this state, many remote sellers actively market sales as tax-free or as transactions not subject to sales and use tax;

“(6) The structural advantages of remote sellers, including the absence of point-of-sale tax collection and the general growth of online retail, make clear that further erosion of this state's sales and use tax base is likely to occur in the near future;

“(7) Remote sellers that make a substantial number of deliveries into Arkansas or collect large gross revenues from Arkansas benefit extensively from this state's market, economy, and infrastructure;

“(8) In contrast with the increasing harm caused to the state by the exemption of remote sellers from sales and use tax collection duties, the costs of such collection have decreased because advanced computing and software options have made it neither difficult nor burdensome for remote sellers to collect and remit sales and use taxes associated with sales of goods and services to residents of this state;

“(9) The United States Supreme Court recently upheld the ability of states to compel out-of-state sellers with no physical presence in the state to collect state sales and use taxes; and

“(10) Any savings realized by the state through tax reforms should be dedicated to reducing the tax burden for Arkansas taxpayers.

“(b) It is the intent of the General Assembly to:

“(1) Reform Arkansas tax laws to modernize and simplify the tax code, increase the state's competitiveness, create jobs, and ensure fairness to all taxpayers;

“(2) Offset any revenue savings realized through tax reform with corresponding changes to reduce the tax burden for Arkansas taxpayers;

“(3) Gradually reduce the tax burden on Arkansas taxpayers in a fiscally responsible manner; and

“(4) Act on the recommendation of the Arkansas Tax Reform and Relief Legislative Task Force to repeal the throwback rule for business income when the state's budget would allow for that change to be enacted in a fiscally responsible manner.”

Publisher's Notes. In reference to the term “passage of the Income Tax Act of 1929”, in (1)(B), Acts 1929, No. 118, § 44, contained an emergency clause which provided that the act would take effect and be in force from and after its passage. The act was approved and signed by the Governor on March 9, 1929.

Amendments. The 2019 amendment rewrote (1)(A) through (1)(C); inserted “described in this subdivision (1)(D)” in (1)(D); inserted “net operating” preceding “loss” in (1)(E)(iii); substituted “stated in this subdivision (1)(E)” for “set forth above” in (1)(E)(iv); deleted “For income years beginning after December 31, 1986” at the beginning of (2)(D)(i) and (ii); inserted the last two occurrences of “net operating” in (3)(A) and (B); added “and before January 1, 2020” in (3)(B); inserted (3)(C) and redesignated former (3)(C) as (3)(D); inserted “the Uniform Division of Income for Tax Purposes Act” in (3)(D); and made stylistic changes.

U.S. Code. 26 U.S.C. § 1202, as in effect on January 1, 1985, referred to in this section, was repealed by P.L. 99-514. A new 26 U.S.C. § 1202 was enacted by P.L. 103-66.

Effective Dates. Acts 2019, No. 822, § 27[a]: “Section 5 of this act is effective for tax years beginning on or after January 1, 2020.”