DFA Attorney for Revenue Legal Counsel Clarifies State Tax Application to GIS Services

In recent months, there have been points of confusion among GIS Board members regarding how sales tax is applicable to geospatial services, with digital orthophotography particularly in mind. The issue was initially addressed by Elizabeth Bowen, GIS Coordinator for Benton County. Bowen raised the question, which came to light while working on a local project, of “why sales tax should be paid for technical professional services.” It is clearly stated in the criteria for Arkansas Gross Receipts Tax (i.e.: “sales tax”) that all photography services are subject to sales tax. However, other GIS services are not clearly defined in the criteria. After much discussion among the members of the Board, it was decided that DFA should be contacted to clear up the confusion surrounding sales tax laws as they apply to cities, counties, and state agencies for the development of spatial data.
Shelby Johnson, Geographic Information Coordinator, corresponded with DFA to find answers regarding the issue. After speaking with Joel DiPippa, an Attorney who provides revenue legal counsel at the DFA, Johnson was able to have the sales tax law deciphered and answer the Board’s questions. According to DiPippa, Vector Data Processing and Global Positioning System data collection (points, lines and polygons) are not subject to sales tax. Raster (image) data processing is also not subject to sales tax. However, Raster (image) data acquisitions, as well as imagery data hardcopies, are both subject to sales tax. DiPippa notes that it is important to keep the services that are taxable separate from the services that are not taxable when listing them on an invoice. If the services are not separated, then the 6% state sales tax will apply to the entire sum, rather than just the taxable amount.
For example:
Item Item Description Amount
1 Imagery Acquisition Service $10,000
2 Imagery Processing Service $10,000

Subtotal $20,000
6% Sales Tax Applied to Item 1 $600
TOTAL $20,600

In the example, the 6% state sales tax does not include city or county taxes. Those taxes apply to the respective location where the acquisition services or the imagery hardcopies were purchased. If the taxable and non-taxable items were not separated on the invoice example, the state sales tax would be double what is listed above.
In conclusion, the services of processing spatial data are not subject to sales tax; however, acquiring geospatial imagery (both the service and the physical product) are both considered to be taxable according to Arkansas state law.