Incentives

The state of Arkansas operates the way businesses do, proactively anticipating opportunities and quickly responding to challenges in innovative ways. This approach, combined with incentive programs, makes Arkansas a profitable choice for locating or expanding a business.

Arkansas' performance-based incentives are naturally competitive and easy to use. The Arkansas Economic Development Commission (AEDC) will focus on your business's specific needs, conduct a cost-benefit analysis, and design a tailored incentive package.

Arkansas' incentives are based on payroll instead of number of jobs and are determined according to location. Counties are divided into four tiers, based on poverty rate, unemployment, per capita income, and population growth; incentives are more lucrative in less-developed counties. Tiers are assigned annually on July 1, based on the previous years' statistics. Jefferson County is a tier four county.

Tax incentives may be combined to allow for more flexibility.


Tax Credits and Incentives

Advantage Arkansas
Income Tax Credit

Advantage Arkansas offers a state income tax credit for job creation based on the payroll of new, full time, permanent employees hired as a result of the project.

The payroll threshold for qualifying for Advantage Arkansas and the benefit received depends on the tier in which the business locates or expands. Arkansas is segmented into four tiers based on poverty rate, population growth, per capita income and unemployment rate. Jefferson County is a tier four county.

The income tax credit is earned each year for a period of five years. The income tax credit cannot offset more than 50 percent of a business' income tax liability in any one year and may be carried forward for nine years beyond the tax year in which the credit was first earned. The credit begins in the tax year in which the new employees are hired. Employees must be Arkansas taxpayers.

Eligibility

The Advantage Arkansas incentive is available for non-retail businesses engaged in commerce for profit that fall into one or more of the following categories:

• Manufacturers in NAICS codes 31-33
• Businesses primarily engaged in the design and development of prepackaged software, digital content production and preservation, computer processing, data preparation services or information retrieval services. Eligible computer-related businesses must derive at least 75 percent of their revenue from out-of-states sales
• Businesses primarily engaged in motion picture production with no retail public sales that derive at least 75 percent of their revenue from out-of-state sales
• Distribution centers, including e-commerce distributors, that derive at least 75 percent of their revenue from out-of-state sales
• Office sector businesses that derive at least 75 percent of their revenue from out-of-state sales
• National or regional headquarters as classified in the NAICS code 551114
• Firms primarily engaged in commercial, physical and biological research as classified in the NAICS code 541710
• Scientific and technical services businesses. The firms must derive at least 75 percent of their revenue from out-of-state sales. The average hourly wage paid by these businesses must exceed 150 percent of the county or state average hourly wage, whichever is less.

Tax Back
Sales & Use Tax Refund

Advantage Arkansas participants investing at least $100,000 are eligible for the Tax Back program. This program provides a refund of sales and use taxes for building materials and taxable machinery and equipment associated with the eligible project.

The business must sign a job-creation agreement under the Advantage Arkansas program within 24 months of signing the Tax Back agreement.

Applicants for Tax Back must obtain an endorsement resolution from the local governing authority that authorizes the refund of its local taxes. Applicants must meet the same qualification criteria as Advantage Arkansas (above), and must be approved by the Arkansas Department of Economic Development.


InvestArk
Sales and Use Tax Credit

InvestArk is a sales and use tax credit program available to businesses established in Arkansas for two years or longer that invest $5 million or more in plant or equipment for new construction, expansion, or modernization. The business must be approved for the program prior to beginning construction. The business must obtain a direct-pay sales and use tax permit from the State of Arkansas. Total project expenditures must be incurred within four years of the project plan approval. All projects will be audited upon completion to confirm the tax credits.

The sales and use tax credit is a percentage of eligible project cost. A credit against the business' state sales and use tax liability is authorized equal to 1/2 percent above the state sales and use tax rate in effect at the time a financial incentive agreement is signed.

The credit may be used to offset up to 50 percent of the business' sales and use tax liability on taxable purchases. The credit is earned in the year the eligible expenditure is made and can be applied against the business' state direct-pay sales and use tax liability in the year following the year of expenditure. If the entire credit cannot be used, the remainder may be carried forward for five years.

Eligibility

The InvestArk Arkansas incentive is available for non-retail businesses engaged in commerce for profit that fall into one or more of the following categories:

• Manufacturers in NAICS codes 31-33
• Businesses primarily engaged in the design and development of prepackaged software, digital content production and preservation, computer processing, data preparation services or information retrieval services. Eligible computer-related businesses must derive at least 75 percent of their revenue from out-of-states sales
• Businesses primarily engaged in motion picture production with no retail public sales that derive at least 75 percent of their revenue from out-of-state sales
• Distribution centers, including e-commerce distributors, that derive at least 75 percent of their revenue from out-of-state sales
• Office sector businesses that derive at least 75 percent of their revenue from out-of-state sales
• National or regional headquarters as classified in the NAICS code 551114
• Firms primarily engaged in commercial, physical and biological research as classified in the NAICS code 541710
• Scientific and technical services businesses. The firms must derive at least 75 percent of their revenue from out-of-state sales. The average hourly wage paid by these businesses must exceed 150 percent of the county or state average hourly wage, whichever is less.

Customized Training Incentives

The Business and Industry Training Program of the Arkansas Economic Development Commission (AEDC) provides pre-employment training for Arkansas workers to meet the skills needed in the state's new and expanding businesses. AEDC's Existing Business Resource Team works with the department's Business Development Unit during the negotiation process. After a commitment to the state is made, a Customized Training Incentives Coordinator is assigned to develop the training plan with the business.

The Existing Workforce Training Program (EWTP) provides financial assistance to Arkansas' businesses and eligible consortia of businesses for upgrading the skills of the existing workforce. Skills upgrade training is instruction conducted in a classroom environment at a work site, an educational institution or a neutral location that provides an existing, full-time employee with the new skills necessary to enhance productivity, improve performance, and/or retain employment.

Eligible businesses include:

• Manufacturers in the NAICS codes 31-33.
• Computer firms that derive at least 75 percent of their revenue from sales outside of Arkansas and have no retail sales to the general public.
• Firms primarily engaged in commercial, physical and biological research as defined by NAICS code 541710.

EWTP reimbursements are calculated according to a set of scoring criteria. For companies that use a state-supported educational institution, the program pays the lesser of the following: 50 percent of the cost of training paid to the school OR

• $ 60 per instructional hour, times the number of instructional hours delivered by a full time instructor or trainer; 50 percent or more eligible participants must complete each course.
• $50 per instructional hour, times the number of instructional hours delivered by adjunct or part-time instructors or trainers; 50 percent or more eligible participants must complete each course.
• $35 per instructional hour, times the number of instructional hours for safety-related training (regardless of instructor status).
• $35 per instructional hour, times the number of instructional hours for all courses if fewer than 50 percent of eligible participants complete each course.
• For companies that use their own employees or company-paid consultants to deliver classroom training to their employees, EWTP offers and Arkansas income tax credit that cannot exceed $15 per instructional hour.

The maximum funding for any one-company site cannot exceed $50,000 per year.

To be considered for financial assistance under EWTP, a company must submit an application prior to the beginning of training, provide assurance that the participants involved in the proposed training program possess the requisite literacy skills, and clearly tie the proposed training to specific business goals and performance objectives.

Tuition Reimbursement Tax Credit

Arkansas provides a 30 percent state income tax credit to eligible companies for tuituin reimbursements made to employees for approved educational expenses. For the company to be eligible, the employees must attend an accredited Arkansas post-secondary educational institution.

Research and Development

Arkansas taxpayers who pay for research performed at Arkansas universities are eligible for a 33 percent income tax credit. In addition, a 10 percent income tax credit, capped at $10,000 per year, was approved for eligible businesses perfoming in-house research. Targeted businesses may also earn transferable income tax credits equal to 33 percent of approved expenditures for in-house research.

Recycling Equipment Tax Credit

Arkansas taxpayers can receive an income tax credit for the purchase of equipment used exclusively for reduction, reuse or recycling of solid waste material for commercial purposes, whether or not for profit, and the cost of installation of such equipment by outside contractors. Such equipment must be used in the collection, separation, processing, modification, conversion, treatment or manufacturing of products containing at least 50 percent recovered materials of which at least 10 percent is post-consumer waste. The amount of the tax credit shall equal 30 percent of the cost of eligible equipment and installation costs. Eligibility is determined by the Arkansas Department of Environmental Quality. Credits may be carried over a maximum of three consecutive years following the taxable year in which the credits accrued.

Taxpayers receiving credit under this Act for the purchase of machinery and equipment shall not be entitled to any other state or local tax credit or deduction based on the purchase of the machinery or equipment, except normal depreciation.


Childcare Facility Tax Incentive

Arkansas offers a tax incentive for businesses that provide childcare for their employees.

A business may choose between two state income tax credit options: 1) a credit of 3.9 percent of the total annual payroll of the employees working in the childcare facility, or 2) a one-time $5,000 state income tax credit for the first year. The income tax credit may be carried forward for two years or until used entirely, whichever occurs first.

In addition to either option, businesses may receive a refund on sales and use taxes on construction materials and furnishings purchased to equip an approved childcare facility.

To qualify for these incentives, the business must be approved by the Arkansas Department of Human Services, Division of Child Care and Early Childhood Education to operate an early childcare program. The business may choose to operate the facility or contract the operations.

Freeport Law

Arkansas's Freeport Law exempts from property tax those finished goods and raw materials in transit or awaiting shipment to out-of-state companies.

Motion Picture Incentive

Qualifying motion picture production businesses spending more than $500,000 within six months. or $1 million within 12 months, in conjunction with the filming or producing of one feature film, telefilm, music video, documentary, episodic television shows or commercial advertisement may receive a refund of state sales and use taxes paid on qualified expenditures incurred in conjunction with the project.

Tourism Development

The Arkansas Tourism Development Act provides state sales and use tax credits and income tax credits to businesses initiating approved tourism attraction projects.

Sales tax credits shall be determined in accordance with the following criteria:

• Eligible minimum project costs must be $1 million, except in high unemployment counties, where it is $500,000.
• The sales tax credits are calculated based upon 15 percent of eligible project cost for projects spending more than $1 million; credits are 25 percent of eligible project cost for the projects in high unemployment counties.
• The sales tax credit may be applied against the business's increased sales tax liability that results from the project.
• Other review criteria may be requested by the Arkansas Economic Development Commission to determine whether the tourism attraction project meets the intent of the Act.

Additionally, eligible businesses may receive a state income tax credit equal to 4 percent of the annual payroll of each new, fulltime, permanent employee.

The income tax credits begin in the year in which the new employees are hired. Any unused portion of the credit may be carried forward against corporate income tax for the succeeding nine years.

Public Roads Improvement Credit

The Arkansas Public Roads Improvement Credit Act of 1999 provides an income tax credit to any individual, fiduciary or corporation subject to Arkansas state income tax that contributes to the Public Roads Incentive Fund of the Economic Development Commission. The contribution may be made to a general improvement fund or designated for a specific project that is approved by the director.

The credit cannot exceed 33 percent of the taxpayer's contribution. In any one tax year, the credit cannot exceed 50 percent of the taxpayer's net Arkansas state income tax liability after all other credits and reductions have been calculated. Any amount over 50 percent can be carried forward up to three years.


Discretionary Incentives

Create Rebate Program Negotiated by the Arkansas Economic Development Commission in highly competitive situations.

Create Rebate provides annual cash payments based on a company's annual payroll for new, full-time, permanent employees. The benefit depends on the tier in which the company locates. Jefferson County is a tier four. In each tier of counties, a minimum payroll of new, full-time, permanent employees of $2 million annually is required. The minimum payroll threshold must be met.

Incentives are available after the business has fulfilled the minimum payroll requirements and certified the payroll amount to the Arkansas Department of Finance and Administration, within 24 months of the date of the financial agreement.

Eligibility

• Manufacturers in NAICS codes 31-33
• Businesses primarily engaged in the design and development of prepackaged software, digital content production and preservation, computer processing, data preparation services or information retrieval services. Eligible computer-related businesses must derive at least 75 percent of their revenue from out-of-states sales
• Businesses primarily engaged in motion picture production with no retail public sales that derive at least 75 percent of their revenue from out-of-state sales
• Distribution centers, including e-commerce distributors, that derive at least 75 percent of their revenue from out-of-state sales
• Office sector businesses that derive at least 75 percent of their revenue from out-of-state sales
• National or regional headquarters as classified in the NAICS code 551114
• Firms primarily engaged in commercial, physical and biological research as classified in the NAICS code 541710
• Scientific and technical services businesses. The firms must derive at least 75 percent of their revenue from out-of-state sales. The average hourly wage paid by these businesses must exceed 150 percent of the county or state average hourly wage, whichever is less.

ArkPlus

Offered at the discretion of the director of the Arkansas Economic Development Commission in highly competitive situations.

ArkPlus is a state income tax credit program that provides tax credits of 10 percent of the total investment in a new location or expansion project.

ArkPlus requires both a minimum investment and a minimum payroll of new, full-time, permanent employees hired as a result of the project, depending on the tier in which the business locates. Jefferson County is a tier four county.

Total project expenditures must be incurred within four years of the date the project was approved by AEDC. New, full-time, permanent employees must be hired within 24 months of the date the financial agreement is signed.

The income tax credits may be used to offset 50 percent of the Arkansas income tax liability in the tax year the credit is earned. Any unused credits may be carried forward for nine years beyond the tax year in which the credit was first earned.

Eligibility

The ArkPlus incentive is available for non-retail businesses engaged in commerce for profit that fall into one or more of the following categories:

• Manufacturers in NAICS codes 31-33
• Businesses primarily engaged in the design and development of prepackaged software, digital content production and preservation, computer processing, data preparation services or information retrieval services. Eligible computer-related businesses must derive at least 75 percent of their revenue from out-of-states sales
• Businesses primarily engaged in motion picture production with no retail public sales that derive at least 75 percent of their revenue from out-of-state sales
• Distribution centers, including e-commerce distributors, that derive at least 75 percent of their revenue from out-of-state sales
• Office sector businesses that derive at least 75 percent of their revenue from out-of-state sales
• National or regional headquarters as classified in the NAICS code 551114
• Firms primarily engaged in commercial, physical and biological research as classified in the NAICS code 541710
• Scientific and technical services businesses. The firms must derive at least 75 percent of their revenue from out-of-state sales. The average hourly wage paid by these businesses must exceed 150 percent of the county or state average hourly wage, whichever is less.

Targeted Businesses
Offered at the discretion of the director of the Arkansas Economic Development Commission. Businesses that qualify as "targeted businesses" may qualify for three special incentives designed to help new, knowledge-based businesses in their early years.

These discretionary incentives are for start-up companies in emerging sectors:

• A refund of sales and use taxes paid on the purchase of building materials and machinery and equipment associated with the approved project.
• A transferable income tax credit equal to 10 percent of payroll for up to five years.
• A transferable income tax credit equal to 33 percent of eligible research and development expenditures

The income tax credits earned under this program may be sold upon approval by the Economic Development Commission.

Eligibility

Companies must meet the following requirements and do business in one of the six targeted emerging technology sectors listed below:

• Be less than five years old
• Have an annual payroll between $100,000 and $1 million
• The business must show proof of an equity investment of at least $400,000
• Pay at least 150 percent of the lesser of the state or county average hourly wage where the business is located
• Meet requisite payroll thresholds

Emerging technology sectors are:

1. Advanced materials and manufacturing systems, with emphasis on the following:
   1. Photonics
   2. Nanotechnology
   3. Electronics manufacturing
   4. Environmental issues related to material and manufacturing
2. Agriculture, food and environmental sciences, with emphasis on the following:
   1. Rice
   2. Poultry
   3. Aquaculture
   4. Toxicology
   5. Agriculture medicine
   6. Forestry
   7. Nutrition
   8. Waste minimization
   9. Energy reduction
   10. Distributed energy generation
   11. Spatial technology
3. Biotechnology, bioengineering and life sciences, with emphasis on the following:
   1. Genetics
   2. Oncology
   3. Geriatrics
   4. Neuroscience
   5. Medical devices
   6. Rehabilitation
   7. Biopharmaceuticals and drug discovery
   8. Protein structure and function
   9. Cell molecular biology
   10. Sensor technology
4. Information technology, with emphasis on the following:
   1. Knowledge and data engineering
   2. Database systems
   3. Distributed systems
   4. Wireless systems
   5. Software development
   6. State of the art applications of information technology to:
      1. Bioinformatics
      2. Healthcare
5. Transportation logistics, with emphasis on the following;
   1. Intelligent material handling
   2. Automated systems
   3. Transportation management systems
6. Bio-based products, with emphasis on the following:
   1. Biodiesel
   2. Ethanol
   3. Methanol
   4. Synthetic crude oil
   5. Adhesives
   6. Polymers
   7. Automotive components
   8. Engineered products from non-traditional biomass sources

If a business falls within one or more of the targeted areas, additional criteria are:

• The business must have an annual payroll of not less than $100,000 or more than $1 million
• The business must show proof of an equity investment of at least $400,000.
• The business must pay wages that are at least 150 percent of the lesser of the state or county average wage where the business is located.

If a business meets all of the above criteria, the director of the Economic Development Commission may offer the business one or more of the following incentives:

Sales and Use Tax Refund for Targeted Businesses- Act 182 of 2003 §15-4-2706(e)(1)

This incentive program provides a refund of sales and use taxes paid on the purchases of building materials and taxable machinery and equipment associated with the approved project for targeted businesses, as defined above. This incentive is not available unless the business has been offered and signed an incentive agreement under the job creation income tax credit for targeted businesses program as authorized by § 15-4-2709.

The application for a sales and use tax refund must be accompanied by an endorsement resolution from the local governing authority (city council or quorum court) that authorizes the refund of its local taxes.

Payroll Income Tax Credit for Targeted Businesses- Act 182 of 2003 §15-4-2709

The payroll income tax credit for targeted businesses is offered to assist with the start-up of businesses in targeted sectors that pay significantly more than the state or county average wage of the county in which the business locates. This incentive is offered only at the discretion of the Director. In order to qualify for this incentive, the business must be included in one of six targeted business sectors as defined above.

The benefit for a qualifying targeted business is a 10 percent income tax credit based on its annual payroll, with a cap of $100,000 per year in earned income tax credits for a business that qualifies and is approved for this incentive. The incentive may be offered for a period not to exceed five years. The five-year period begins on the date the financial incentive agreement is signed and may not extend beyond 60 months from that date. Unlike the other incentives, this targeted payroll income tax credit may include existing employees in the calculation of payroll to qualify for this benefit.

A unique feature of this incentive is the ability of the business that earns the targeted business income tax credit to sell the credits. The business must make application to the department for the sale of credits earned under this section within one year of issuance. Upon approval by the department, the business may sell earned income tax credits within one year of issuance. The department may assist the business in finding a buyer for the tax credits.

Since one of the allowable costs under the research and development tax credits (discussed below) is the salary of a person performing research, a business earning job creation income tax credits for targeted businesses is prohibited from earning research and development tax credits, as authorized by § 15-4-2708 or by § 26-51-1102(b) for the same expenditure.

Targeted In-house R & D- Act 182 of 2003 §15-4-2708(c)

Businesses deemed by the department to fit within the six business sectors classified as "targeted businesses" may enter into a financial agreement for income tax credits based on qualified research and development expenditures. An eligible business may be approved for an income tax credit each year equal to 33 percent of the qualified research and development expenditures incurred each year for the first five years of the financial incentive agreement. This incentive is a discretionary incentive and is offered only at the discretion of the Director. The application for this income tax credit shall include a project plan, which clearly identifies the intent of the project, the expenditures planned, the start and end dates of the project, and an estimate of total project costs. The Department is partnering with the Arkansas Science and Technology Authority which will review all applications for R&D tax credits and monitor projects if appropriate.

The Commission will adhere to some of the federal guidelines for qualifying research for federal tax credits as a guide in determining the eligibility for this state income tax credit.

Qualified research expenditures include in-house expenses for taxable wages paid and supplies used in the conduct of qualified research. Qualified research must satisfy all of the following tests in order to qualify:

• The activity must be undertaken for the purpose of discovering information which is technological in nature;
• The application of technological information must be intended to be useful in the new or improved business component; and
• Substantially all of the activities related to the research effort must constitute elements of a process of experimentation relating to a new or improved function, performance, reliability or quality.

The following activities are specifically excluded from the definition of qualified research:

• Any research conducted after the beginning of commercial production;
• Research adapting an existing product or process to a particular customer's need;
• Duplication of an existing product or process;
• Surveys or studies;
• Research related to certain internal-use computer software;
• Research conducted outside of Arkansas; and
• Research in the social sciences, arts or humanities.

Qualified wages are taxable wages paid to a full-time permanent employee for performing qualified services.
Qualified services are services of employees who are:

• Engaging in qualified research, which means the actual conduct of qualified research;
• Engaging in the direct supervision of qualified research, which means the immediate supervision (first-line management) of qualified research; and
• Engaging in the direct support of research activities that constitute qualified research.

The qualified services must be in the direct support of either A) persons engaging in the actual conduct of qualified research or B) persons who are directly supervising persons engaging in the actual conduct of qualified research.

Direct support of research activities does not include general administrative services or other services only indirectly of benefit to the research activity.

As with the job creation income tax credits for targeted businesses, the income tax credit for research and development earned by targeted businesses may be sold. The business must make application to the department for the sale of credits earned under this section within one year of issuance. Upon application and approval by the department, the business may sell earned income tax credits within one year of issuance. The commission may assist the targeted business in finding a buyer for the tax credits.

A targeted business earning research and development tax credits is prohibited from earning job creation tax credits, as authorized by § 15-4-2709 or research tax credits as authorized by §15-4-2708(a), for the same expenditure.

Combination with other incentives: The income tax credit for research by a targeted business authorized by 15-4-2708 (c) may not be used with:

• Other in-house research and development incentives as authorized by §15-4-2708(b) or §15-4-2708(d)(1)(A); or
• Any other incentive in Act 182 of 2003 (Consolidated Incentive Act of 2003) for the same expenditures.

Non-Profit Incentive Program
Offered at the discretion of the Director of Economic Development Commission

The primary purpose of the Non-Profit Incentive Program is to encourage the location or expansion of national or regional non-profit headquarters in Arkansas.

Eligible non-profit organizations must create a payroll for new, full-time, permanent employees of at least $1 million dollars and pay an average wage in excess of 110 percent of the state or county average wage (whichever is less) in the county in which the organization locates or expands. In addition, the non-profit organization must receive 75 percent of its income from out-of-state sources.

If offered, this program provides an incentive payment (payroll rebate) equal to 4 percent of payroll of the new, full-time, permanent employees for a period of up to five years.

In addition to the payroll rebate, this program also provides a sales and use tax refund for eligible projects that invest a minimum of $500,000. The refund is eligible for taxes paid on construction materials, and machinery and equipment associated with the approved project.

Rules:

Organizations that have been approved by the Arkansas Secretary of State as having met the qualifications for a non-profit organization in Arkansas and which has also received a 501(c) designation from the United States Internal Revenue Service.

Super Projects

In November 2004, Arkansas voters overwhelmingly approved an amendment to the state constitution to help attract super projects. Amendment 82 defines a super project as one that creates at least 500 new jobs and invests more than $500 million. The state can issue bonds to fund a prospect's infrastructure needs through the Arkansas Development Finance Authority, limited to 5 percent on net general revenues during the most recent fiscal year.

AEDC will perform a comprehensive cost-benefit analysis to determine the level of incentives the state can use to compete for the super project and still obtain a good return on the state's investment.

Examples of the type of projects that might meet the criteria for a super project and have infrastructure needs that would require bond financing could include steel mills, paper mills, corporate headquarters, pharmaceutical companies, automobile parts and assembly plants. Emerging technologies, such as nanotechnology or biotechnology may also have needs that could be met by Amendment 82.


Source: Arkansas Economic Development Commission, http://arkansasedc.com/business-development/incentives.aspx
November, 7 2007.