Arkansas Code of 1987 (2023) › Title 26 - TAXATION (§§ 26-1-101 — 26-82-119) › Subtitle 5 - STATE TAXES (§§ 26-50-101 — 26-65-108) › Chapter 51 - INCOME TAXES (§§ 26-51-101 — 26-51-2804) › Subchapter 4 - COMPUTATION OF TAX LIABILITY (§§ 26-51-401 — 26-51-461) › Section 26-51-440 - Federal Subchapter M adopted - Definition

(a)
(1)
Subchapter M of the Internal Revenue Code,
26 U.S.C. § 851
et seq., as in effect on January 1, 2019, relating to regulated investment companies, real estate investment trusts, real estate mortgage investment conduits, and financial asset securitization investment trusts, is adopted for the purpose of computing Arkansas income tax liability and shall govern all corporations that are registered as investment companies under the Investment Company Act of 1940,
15 U.S.C. § 80a-1
et seq., as in effect on January 1, 2019.
(2)
(A)
However, those provisions of Subchapter M of the Internal Revenue Code,
26 U.S.C. § 851
et seq., addressing the tax rates applied to financial asset securitization investment trust income are not adopted.
(B)
Any financial asset securitization investment trust income subject to Arkansas income tax shall be taxed at the rates set forth in §
26-51-205
.
(b)
As used in this section:
(1)
(A)
"Captive real estate investment trust" means a real estate investment trust the shares or beneficial interests of which are not regularly traded on an established securities market and more than fifty percent (50%) of the voting power or value of the beneficial interests or shares of which are owned or controlled, directly, indirectly, or constructively by a single entity that is:
(i)
Treated as an association taxable as a corporation under the Internal Revenue Code,
26 U.S.C. § 1
et seq., as in effect on January 1, 2009; and
(ii)
Not exempt from federal income tax under
26 U.S.C. § 501(a)
, as in effect on January 1, 2009.
(B)
"Captive real estate investment trust" does not include a real estate investment trust that is intended to be regularly traded on an established securities market and that satisfies the requirements of
26 U.S.C. § 856(a)(5) and (6)
, as in effect on January 1, 2009, by reason of
26 U.S.C. § 856(h)(2)
, as in effect on January 1, 2009; and
(2)
"Real estate investment trust" means the same as defined in
26 U.S.C. § 856
, as in effect on January 1, 2009.
(c)
For purposes of applying subdivision (b)(1)(A)(i) of this section, the following entities are not considered an association taxable as a corporation under the Internal Revenue Code,
26 U.S.C. § 1
et seq.:
(1)
A real estate investment trust other than a captive real estate investment trust;
(2)
A qualified real estate investment trust subsidiary under
26 U.S.C. § 856(i)
, as in effect on January 1, 2009, other than a qualified real estate investment trust subsidiary of a captive real estate investment trust;
(3)
A listed Australian Property Trust, meaning an Australian unit trust registered as a Managed Investment Scheme under the Australian Corporations Act 2001 in which the principal class of units is listed on a recognized stock exchange in Australia and is regularly traded on an established securities market, or an entity organized as a trust, provided that a listed Australian Property Trust owns or controls, directly or indirectly, seventy-five percent (75%) or more of the voting power or value of the beneficial interests or shares of such trust; or
(4)
A qualified Foreign Entity, meaning a corporation, trust, association, or partnership organized outside the laws of the United States and which satisfies the following criteria:
(A)
At least seventy-five percent (75%) of the entity's total asset value at the close of its taxable year is represented by real estate assets, as defined in
26 U.S.C. § 856(c)(5)(B)
, as in effect on January 1, 2009, including shares or certificates of beneficial interest in any real estate investment trust, cash and cash equivalents, and United States Government securities;
(B)
The entity is not subject to tax on amounts distributed to its beneficial owners or is exempt from entity-level taxation;
(C)
The entity distributes at least eighty-five percent (85%) of its taxable income, as computed in the jurisdiction in which it is organized, to the holders of its shares or certificates of beneficial interest on an annual basis;
(D)
More than ten percent (10%) of the voting power or value in the entity is not held directly, indirectly, or constructively by a single entity or individual, or the shares or beneficial interests of the entity are regularly traded on an established securities market; and
(E)
The entity is organized in a country that has a tax treaty with the United States.
(d)
The dividends-paid deduction otherwise allowed by federal law in computing net income of a real estate investment trust that is subject to federal income tax shall be added back in computing the tax imposed by the Income Tax Act of 1929, §
26-51-101
et seq., if the real estate investment trust is a captive real estate investment trust.
(e)
(1)
A real estate investment trust that does not become regularly traded on an established securities market within one (1) year of the date on which it first became a real estate investment trust shall not be considered to have been regularly traded on an established securities market, retroactive to the date it first became a real estate investment trust, and the owner of the real estate investment trust shall file an amended return reflecting the retroactive designation for any tax year or part year occurring during its initial year of status as a real estate investment trust.
(2)
Under this section, a real estate investment trust becomes a real estate investment trust on the first day that it has:
(A)
Met the requirements of
26 U.S.C § 856
as in effect on January 1, 2009; and
(B)
Elected to be treated as a real estate investment trust under
26 U.S.C. § 856(c)(1)
, as in effect on January 1, 2009, by the owner of the real estate investment trust.
(f)
Under this section, the constructive ownership rules of
26 U.S.C. § 318(a)
, as in effect on January 1, 2009, as modified by
26 U.S.C. § 856(d)(5)
, as in effect on January 1, 2009, shall apply in determining the ownership of stock, assets, or net profits of a person.
(g)
An election made for federal income tax purposes under Subchapter M of the Internal Revenue Code,
26 U.S.C. § 851
et seq., as in effect on January 1, 2009, shall be deemed made for state income tax purposes.
(h)
This section shall take effect and be enforced for tax years beginning on or after January 1, 2009.
Amended by Act 2019, No. 870,§ 12, eff. for tax years beginning on or after 1/1/2019.
Amended by Act 2017, No. 155,§ 23, eff. for tax years beginning on and after 1/1/2015.
Amended by Act 2015, No. 580,§ 20, eff. for tax years beginning on or after January 1, 2014.
Amended by Act 2013, No. 1254,§ 11, eff. 8/16/2013, op. retroactively to tax years beginning on or after 1/1/2012.
Acts 1989, No. 583, § 5; 1995, No. 1160, § 13; 1997, No. 951, § 24; 1999, No. 1126, § 36; 2001, No. 773, § 10; 2007, No. 218, § 31; 2007, No. 827, § 217; 2009, No. 372, § 22; 2011, No. 787, § 29.