Can I hire employees as independent contractors to save money on taxes in Arkansas? What are the requirements?

Based on the information provided in the context documents, it is not recommended to hire employees as independent contractors to save money on taxes in Arkansas. Misclassifying employees as independent contractors can result in serious consequences, including liability for unpaid taxes and penalties ^[2.1].

Requirements for Independent Contractors

According to ARCO 26-53-203, all tangible personal property, specified digital products, and digital codes that are procured from outside the state for use, storage, distribution, or consumption, including machinery, equipment, repair or replacement parts, materials, and supplies used, stored, distributed, or consumed by a contractor in the performance of a contract in this state, are subject to the compensating tax of 4.5% of the purchase price. This means that if you hire independent contractors from outside the state, you will still be required to pay taxes on the materials and supplies they use in the performance of their work.

Consequences of Misclassifying Employees

Additionally, it is important to note that misclassifying employees as independent contractors can result in serious consequences. According to ARCO 19-4-1602, deductions from the payrolls of state employees are authorized only for specific purposes, including withholding taxes. This means that if you misclassify employees as independent contractors, you may be liable for unpaid taxes and penalties.

Conclusion

In conclusion, it is not recommended to hire employees as independent contractors to save money on taxes in Arkansas. It is important to properly classify employees and pay the appropriate taxes to avoid legal and financial consequences.

Source(s):

• [2.1] Employees.

Jurisdiction

Arkansas

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