2010 Arkansas Code
Title 15 - Natural Resources and Economic Development
Subtitle 1 - Development Of Economic And Natural Resources Generally
Chapter 4 - Development Of Business And Industry Generally
Subchapter 27 - Consolidated Incentive Act of 2003
§ 15-4-2706

LexisNexis Practice Insights

1. Sales and Use Tax Refund ("Tax Back" Program) for both New and Expanding Eligible Businesses in Arkansas

2. Sales and Use Tax Refund for both New and Expanding Eligible Businesses in Arkansas ("InvestArk" Program)

3. Arkansas Taxpayers Should Consider EZ Benefits Offered by Other States

4. Location-Based Tax Benefits for Arkansas Taxpayers

15-4-2706. Investment tax incentives.

(a) There are established investment tax incentives to:

(1) Encourage capital investment for the long-term viability of businesses in the state; and

(2) Create new jobs.

(b) (1) The award of this incentive shall be at the discretion of the Director of the Arkansas Economic Development Commission.

(2) If offered, an application for an income tax credit under this section shall be submitted to the commission.

(3) Eligibility for this incentive is dependent upon the tier in which the project is located, as follows:

(A) For tier 1 counties, the business shall invest five million dollars ($5,000,000) or more and have an annual payroll for new full-time permanent employees in excess of two million dollars ($2,000,000);

(B) For tier 2 counties, the business shall invest three million seven hundred fifty thousand dollars ($3,750,000) or more and have an annual payroll for new full-time permanent employees in excess of one million five hundred thousand dollars ($1,500,000);

(C) For tier 3 counties, the business shall invest three million dollars ($3,000,000) or more and have an annual payroll for new full-time permanent employees in excess of one million two hundred thousand dollars ($1,200,000); or

(D) For tier 4 counties, the business shall invest two million dollars ($2,000,000) or more and have an annual payroll for new full-time permanent employees in excess of eight hundred thousand dollars ($800,000).

(4) Upon approval by the commission, the director shall transmit an approved financial incentive agreement to the approved company and the Revenue Division of the Department of Finance and Administration.

(5) The qualified business shall reach the investment threshold within four (4) years from the date of the signing of the financial incentive agreement, except for lease payments authorized by subdivision (b)(6)(D) of this section or subdivision (c)(6) of this section.

(6) (A) (i) After receiving an approved financial incentive agreement from the commission, the approved company shall certify eligible project costs annually at the end of each calendar year for the term of the agreement to the Revenue Division.

(ii) Upon verification of eligible project costs, the Revenue Division shall authorize an income tax credit of ten percent (10%) based on the total investment in land, buildings, equipment, and costs related to licensing and protecting intellectual property.

(B) The amount of income tax credit taken during any tax year shall not exceed fifty percent (50%) of the business's income tax liability resulting from the project or facility.

(C) Unused tax credits may be carried forward for up to nine (9) years after the year in which the credit was first earned.

(D) A qualified business that enters into a lease for a building or equipment for a period in excess of five (5) years may count the lease payments for five (5) years as a qualifying expenditure for the investment threshold required for this investment incentive.

(7) Technology-based enterprises, as defined by 14-164-203(12), may earn, at the discretion of the Director of the Arkansas Economic Development Commission, an income tax credit or sales and use tax credit based on new investment, provided that the technology-based enterprise:

(A) Creates a new payroll of at least two hundred fifty thousand dollars ($250,000); and

(B) Pays wages that are at least one hundred seventy-five percent (175%) of the state or county average hourly wage, whichever is less.

(8) (A) The income tax credit or sales and use tax credit that may be earned by a technology-based enterprise shall be based on the level of investment as follows:

(i) The income tax credit or sales and use tax credit will be equal to two percent (2%) of the investment for an investment that is between two hundred fifty thousand dollars ($250,000) and five hundred thousand dollars ($500,000);

(ii) The income tax credit or sales and use tax credit will be equal to four percent (4%) of the investment for that part of the investment that is over five hundred thousand dollars ($500,000) and less than one million dollars ($1,000,000);

(iii) The income tax credit or sales and use tax credit will be equal to six percent (6%) of the investment for that part of the investment that is over one million dollars ($1,000,000) and less than two million dollars ($2,000,000); and

(iv) The income tax credit or sales and use tax credit will be equal to eight percent (8%) of the investment for that part of the investment that is over two million dollars ($2,000,000).

(B) The percentage of the investment used to determine the amount of credit earned shall be established based upon the project cost estimate at the time of signing the financial incentive agreement.

(9) All investments by a technology-based enterprise must be made within four (4) years of the date of the signed financial incentive agreement.

(10) Prior to execution of the financial incentive agreement, the approved company shall elect to receive the tax credits as either:

(A) A sales and use tax credit; or

(B) An income tax credit.

(11) (A) The income tax credit or sales and use tax credit earned by a technology-based enterprise may offset income tax liabilities or sales and use tax liabilities as follows:

(i) A technology-based enterprise that pays at least one hundred seventy-five percent (175%) of the state or county average hourly wage, whichever is less, may offset fifty percent (50%) of its income tax liability or sales and use tax liability;

(ii) A technology-based enterprise that pays at least two hundred percent (200%) of the state or county average hourly wage, whichever is less, may offset seventy-five percent (75%) of its income tax liability or sales and use tax liability; and

(iii) A technology-based enterprise that pays at least two hundred twenty-five percent (225%) of the state or county average hourly wage, whichever is less, may offset one hundred percent (100%) of its income tax liability or sales and use tax liability.

(B) The average hourly wage proposed to be paid by the approved company as provided in the signed financial incentive agreement shall be the average hourly wage to determine the percentage of credit that may be used against the approved company's tax liability for the term of the financial incentive agreement.

(12) After receiving an approved financial incentive agreement from the commission, the approved company shall certify eligible project costs annually at the end of each tax year for the term of the financial incentive agreement to the Revenue Division of the Department of Finance and Administration.

(13) Unused income tax credits or sales and use tax credits may be carried forward for a period not to exceed nine (9) years after the year in which the credit was first earned.

(c) (1) (A) An application for a retention tax credit under this subsection shall be submitted to the commission.

(B) (i) The application shall be submitted to the commission before incurring any project costs.

(ii) With the exception of preconstruction costs, only those costs incurred after the commission's approval are eligible for the tax credit.

(2) The tax credit against the qualified business' sales and use tax liability is available only to Arkansas businesses that:

(A) Have been in continuous operation in the state for at least two (2) years;

(B) Invest a minimum of five million dollars ($5,000,000) in a project, including land, buildings, and equipment used in the construction, expansion, or modernization; and

(C) Hold a direct-pay sales and use tax permit from the Revenue Division before submitting an application for benefits.

(3) (A) If allowed, the credit shall be a percentage of the eligible project costs.

(B) The amount of the credit shall be one-half percent (0.5%) above the state sales and use tax rate in effect at the time a financial incentive agreement is signed with the commission.

(C) In any one (1) year following the year of the expenditures, credits taken cannot exceed fifty percent (50%) of the direct pay sales and use tax liability of the business for taxable purchases.

(D) Unused credits may be carried forward for a period of up to five (5) years beyond the year in which the credit was first earned.

(4) (A) Upon determination by the Director of the Arkansas Economic Development Commission that the project qualifies for credit under this subsection, the Director of the Arkansas Economic Development Commission shall certify to the Director of the Department of Finance and Administration that the project qualifies and shall transmit with his or her certification the documents or copies of the documents upon which the certification was based.

(B) The Director of the Department of Finance and Administration shall provide forms to the qualified business on which to claim the credit.

(C) At the end of the calendar year in which the application is made and at the end of each calendar year thereafter until the project is completed, the qualified business shall certify on the form provided by the Director of the Department of Finance and Administration the amount of expenditures on the project during the preceding calendar year.

(D) Upon receipt of the form certifying expenditures, the Director of the Department of Finance and Administration shall determine the amount due as a credit for the preceding calendar year and issue a memorandum of credit to the qualified business.

(E) The credit against the qualified business' sales and use tax liability shall be a percentage of the eligible project costs equal to one-half percent (0.5%) above the state sales and use tax rate in effect at the time the financial incentive agreement was signed by the commission.

(5) If a business plans to apply for benefits under this subsection and also plans to apply for benefits under 15-4-2705, the financial incentive agreement under 15-4-2705 must be signed within twenty-four (24) months after signing the financial incentive agreement under this subsection.

(6) A qualified business that enters into a lease for a building or equipment for a period in excess of five (5) years may count the lease payments for five (5) years as a qualifying expenditure for the investment threshold required for this investment incentive.

(d) (1) (A) An application for a state and local sales and use tax refund for a new and expanding eligible business shall be filed with the commission contingent upon the approval of an endorsement resolution from the governing authority of a municipality or county, or both, in whose jurisdiction the business will be located.

(B) The resolution shall:

(i) Endorse the applicant's participation in this sales and use tax refund program; and

(ii) (a) Specify that the Department of Finance and Administration is authorized to refund local sales taxes to the qualified business.

(b) A municipality or county, or both, may authorize the refund of any sales or use tax levied by the municipality or county but may not authorize the refund of any sales or use tax not levied by the municipality or county in which the qualified business is located.

(C) Any eligible business that applies for a sales and use tax refund under this subsection shall invest in excess of one hundred thousand dollars ($100,000) in order to qualify for the sales and use tax refund.

(2) (A) (i) A sales and use tax refund of state and local sales and use taxes, excepting the sales and use taxes dedicated to the Educational Adequacy Fund created in 19-5-1227 and the Conservation Tax Fund as authorized by 19-6-484, on the purchases of the material used in the construction of a building or buildings or any addition, modernization, or improvement thereon for housing any new or expanding qualified business and machinery and equipment to be located in or in connection with such a building shall be authorized by the Director of the Department of Finance and Administration.

(ii) The local sales and use tax may be refunded only from the municipality or county, or both, in which the qualified business is located.

(B) A refund shall not be authorized for:

(i) Routine operating expenditures; or

(ii) The purchase of replacements of items previously purchased as part of a project under this subsection unless the items previously purchased are necessary for the implementation or completion of the project.

(3) Subject to the approval of the commission, a program participant may make changes in a project by written amendment to the project plan filed with the commission.

(4) All claims for sales and use tax refunds under this subsection shall be denied unless they are filed with the Revenue Division of the Department of Finance and Administration within three (3) years from the date of the qualified purchase or purchases.

(5) (A) (i) In order to be eligible for the benefits under this subsection, a business shall sign a job creation financial incentive agreement under 15-4-2705 or 15-4-2707 and comply with the eligibility requirements of the incentive agreement.

(ii) However, a business may apply for benefits under this subsection if:

(a) The business has an existing agreement under subdivision (d)(5)(A) of this section and the provisions of subdivision (d)(5)(B) of this section have been met within the previous forty-eight (48) months; or

(b) The business has signed a job creation financial incentive agreement under 15-4-2705 or 15-4-2707 within the previous forty-eight (48) months.

(B) The financial incentive agreement under 15-4-2705 or 15-4-2707 shall be signed within twenty-four (24) months after signing the financial incentive agreement under this subsection.

(e) (1) A new targeted business shall be eligible for a refund of state and local sales and use taxes for qualified expenditures identified in the project plan if:

(A) The annual payroll of the business for Arkansas taxpayers is greater than one hundred thousand dollars ($100,000); and

(B) The business shows proof of an equity investment of at least two hundred fifty thousand dollars ($250,000).

(2) (A) An application for the targeted business state and local sales and use tax refund program for a new targeted business shall be filed with the commission contingent upon the approval of an endorsement resolution from the governing authority of a municipality or county, or both, in whose jurisdiction the business will be located.

(B) The resolution shall:

(i) Endorse the applicant's participation in this sales and use tax refund program; and

(ii) (a) Specify that the Department of Finance and Administration is authorized to refund local sales and use taxes to the targeted business.

(b) A municipality or county, or both, can authorize the refund of any sales tax levied by the municipality or county but cannot authorize the refund of any sales or use tax not levied by the municipality or county in which the targeted business is located.

(3) After the Director of the Arkansas Economic Development Commission has determined that the project is eligible for the sales and use tax refund, this determination accompanied by the financial incentive agreement and any other pertinent documentation shall be forwarded to the Director of the Department of Finance and Administration.

(4) (A) (i) A sales and use tax refund of state and local sales and use taxes, excepting the sales and use taxes dedicated to the Educational Adequacy Fund as authorized by 26-57-1002(d)(1)(A)(ii)(a) and the Conservation Tax Fund as authorized by 19-6-484, on the purchases of the material used in the construction of a building or buildings or any addition, modernization, or improvement thereon for housing any new or expanding qualified business and machinery and equipment to be located in or in connection with such a building shall be authorized by the Director of the Department of Finance and Administration.

(ii) The local sales and use tax may be refunded only from the municipality or county, or both, in which the qualified business is located.

(B) A refund shall not be authorized for:

(i) Routine operating expenditures; or

(ii) The purchase of replacement items under this subsection unless the items are necessary for the implementation or completion of the project.

(5) Subject to the approval of the commission, a program participant may make changes in a project by written amendment to the project plan filed with the Arkansas Economic Development Commission.

(6) All claims for sales and use tax refunds under this subsection shall be denied unless they are filed with the Revenue Division of the Department of Finance and Administration within three (3) years after the date of the qualified purchase or purchases.

(7) If a targeted business plans to apply for benefits under this subsection and also plans to apply for benefits under 15-4-2709, the financial incentive agreement under 15-4-2709 must be signed within twenty-four (24) months of signing the financial incentive agreement under this subsection and comply with the eligibility requirements of the agreements.

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