Is COVID-19 Sterilization a Taxable Service in Arkansas?

With the demand for COVID decontamination on the upswing, businesses providing COVID-19 cleaning or sterilization services in Arkansas should consider the sales taxability of such services.  Arkansas taxes cleaning and janitorial services.  Ark. Code Ann. § 26-52-301(3)(D)(i)(b); Gross Receipts Tax Rule GR-9.4.  DFA's applied interpretation of cleaning is sometimes broader than ordinary janitorial services; for example providers of industrial cleanup services may be surprised to see DFA take the position that such services are taxable.

In the context of COVID-19, it is unclear how far DFA will attempt to extend the cleaning and janitorial services tax to sterilization, disinfection, or decontamination services.  There is a concept in Rule GR-9.4(E) that delineates nontaxable USDA-required food processing sanitizing from taxable "ordinary cleaning work."  Analogous reasoning may apply in the context of COVID-19 when the sterilization services exceed ordinary cleaning work.  In Director's Revision Decision nos. 16-348 and 16-349 (Oct. 17, 2016), however, DFA classified an ozone-based air-cleaning system as taxable.  The service was characterized as "sterilization or disinfection services performed within the air and upon a building’s interior surfaces utilizing the ozone generators."

Providers may wish to seek guidance from DFA in the form of a legal opinion or to simply register and collect the tax out of an abundance of caution.  It may merit evaluating the specific facts of the services provided with tax or legal advisers.

Arkansas buyers of services generally do not face gross receipts (sales) tax self-assessment risk on provision of in-state services absent a direct pay permit or an exemption certificate.  Such buyers that do face self-assessment risks should evaluate their positions as well.

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