Arkansas Code of 1987 (2023) › Title 15 - NATURAL RESOURCES AND ECONOMIC DEVELOPMENT (§§ 15-1-101 — 15-76-324) › Subtitle 1 - DEVELOPMENT OF ECONOMIC AND NATURAL RESOURCES GENERALLY (§§ 15-1-101 — 15-14-108) › Chapter 4 - DEVELOPMENT OF BUSINESS AND INDUSTRY GENERALLY (§§ 15-4-101 — 15-4-3910) › Subchapter 27 - CONSOLIDATED INCENTIVE ACT OF 2003 (§§ 15-4-2701 — 15-4-2714) › Section 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 incentives under this section are 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 Arkansas Economic Development Commission.
(3)
Eligibility for incentives under this section 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); and
(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)
An approved financial incentive agreement shall be transmitted to the qualified business and the Department of Finance and Administration.
(5)
A qualified business shall reach the investment threshold within four (4) years from the date of the approved 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, a qualified business shall certify to the department the eligible project costs annually at the end of each calendar year for the term of the financial incentive agreement.
(ii)
The department shall authorize an income tax credit of ten percent (10%) of total audited eligible project costs.
(B)
The amount of income tax credit authorized under subdivision (a)(6)(A)(ii) of this section may offset up to fifty percent (50%) of a qualified business's income tax liability annually.
(C)
Unused tax credits may be carried forward for up to nine (9) years after the year in which the credit was first earned or until the tax credits are exhausted, whichever occurs first.
(D)
A qualified business that enters into a lease for a building or equipment for a period of at least five (5) years may count the lease payments for the first 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
, may earn, at the discretion of the director, 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 an average hourly wage that is at least one hundred fifty percent (150%) of the lesser of the state or county average hourly wage for the county in which the business locates or expands.
(8)
(A)
The income tax credit or sales and use tax credit that may be earned by a technology-based enterprise is based on the amount of investment as follows:
(i)
The income tax credit or sales and use tax credit is 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 is 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 is 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 is 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 amount of credit earned is determined based upon the amount invested, as verified by an audit by the department.
(9)
All investments by a technology-based enterprise shall be made within four (4) years of the date of the approved financial incentive agreement.
(10)
Prior to commission approval of a financial incentive agreement, the business shall elect to receive the tax credits as either:
(A)
A sales and use tax credit; or
(B)
An income tax credit.
(11)
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:
(A)
A technology-based enterprise that pays at least one hundred fifty percent (150%) of the lesser of the state or county average hourly wage for the county in which the business locates or expands may offset up to fifty percent (50%) of its income tax liability or sales and use tax liability annually;
(B)
A technology-based enterprise that pays at least one hundred seventy-five percent (175%) of the lesser of the state or county average hourly wage for the county in which the business locates or expands may offset up to seventy-five percent (75%) of its income tax liability or sales and use tax liability annually; and
(C)
A technology-based enterprise that pays at least two hundred percent (200%) of the lesser of the state or county average hourly wage for the county in which the business locates or expands may offset up to one hundred percent (100%) of its income tax liability or sales and use tax liability annually.
(12)
After receiving an approved financial incentive agreement from the commission, a qualified business shall certify to the department the eligible project costs and average hourly wages annually at the end of each tax year for the term of the financial incentive agreement.
(13)
Unused income tax credits or sales and use tax credits may be carried forward for up to nine (9) years after the year in which the credit was first earned or until the tax credits are exhausted, whichever occurs first.
(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's 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 department before submitting an application for incentives.
(3)
(A)
If allowed, the credit shall be a percentage of the eligible project costs.
(B)
The amount of the credit shall be five-tenths 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 qualified 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.
(E)
Retention tax credits earned between forty-nine (49) and seventy-two (72) months after the commission approved the financial incentive agreement may be taken only:
(i)
On and after July 1, 2023;
(ii)
After the director has determined, based on evidence provided by the applicant, that the applicant's investment in the part of the qualified project to be completed between forty-nine (49) and seventy-two (72) months after the commission approved the financial incentive agreement will generate a return that will likely be equal to or greater than the amount of retention tax credits under this subdivision (c)(3)(E); and
(iii)
For an application filed with the commission between June 22, 2017, and June 28, 2017.
(F)
The maximum amount of retention tax credits under subdivision (c)(3)(E) of this section that may be used in any fiscal year by a qualified applicant is seven hundred fifty thousand dollars ($750,000).
(4)
(A)
Upon determination by the director that the project qualifies for credit under this subsection, the director shall certify to the Secretary 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 secretary 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 secretary the amount of expenditures on the project during the preceding calendar year.
(D)
Upon receipt of the form certifying expenditures, the secretary 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's sales and use tax liability shall be a percentage of the eligible project costs equal to five-tenths percent (0.5%) above the state sales and use tax rate in effect at the time the financial incentive agreement was approved by the commission.
(5)
If a business plans to apply for incentives under this subsection and also plans to apply for incentives under §
15-4-2705
, the financial incentive agreement under §
15-4-2705
shall be approved within two (2) years 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 of at least five (5) years may count the lease payments for the first five (5) years as a qualifying expenditure for the investment threshold required for this investment incentive.
(7)
(A)
A business may apply for the retention tax credit under this subsection through June 30, 2017.
(B)
(i)
An application for the retention tax credit under this subsection shall not be accepted on or after July 1, 2017.
(ii)
However, projects that qualify for a retention tax credit based on an application filed through June 30, 2017, shall continue to earn credits as provided in this section.
(iii)
Retention tax credits issued on a project that qualifies for retention tax credits based on an application filed through June 30, 2017, shall remain in effect and shall be taken and carried forward as otherwise provided in this section.
(d)
(1)
(A)
An application for a state and local sales and use tax refund for a new or expanding 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 business's participation in this sales and use tax refund program; and
(ii)
Specify that the department is authorized to refund local sales taxes to the qualified business.
(C)
To qualify for a refund under this subsection, a qualified business shall meet the minimum investment thresholds for the tier in which the qualified business expands or locates, as follows:
(i)
For tier 1 counties, the minimum investment threshold is at least five hundred thousand dollars ($500,000);
(ii)
For tier 2 counties, the minimum investment threshold is at least four hundred thousand dollars ($400,000);
(iii)
For tier 3 counties, the minimum investment threshold is at least three hundred thousand dollars ($300,000); and
(iv)
For tier 4 counties, the minimum investment threshold is at least two hundred thousand dollars ($200,000).
(2)
(A)
(i)
The secretary shall authorize 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 and the Conservation Tax Fund 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.
(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 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)
(A)
Subject to the approval of the commission, a qualified business may make changes to a project by written amendment to the project plan filed with the commission.
(B)
The commission shall not approve an amendment under subdivision (d)(3)(A) of this section that results in a cost increase of more than twenty-five percent (25%) of the initial project plan.
(4)
All claims for sales and use tax refunds under this subsection shall be denied unless they are filed with the department within three (3) years from the date of the qualified purchase or purchases.
(5)
(A)
(i)
To be eligible for the incentives under this subsection, a qualified business shall meet all payroll creation requirements of its approved financial incentive agreement under §
15-4-2705
or §
15-4-2707
.
(ii)
However, a business may apply for incentives under this subsection if:
(a)
The business has an existing financial incentive agreement approved under this subdivision (d)(5)(A) and the provisions of subdivision (d)(5)(B) of this section have been met within the previous four (4) years; or
(b)
The business has signed a financial incentive agreement approved under §
15-4-2705
or §
15-4-2707
within the previous four (4) years.
(B)
The financial incentive agreement under §
15-4-2705
or §
15-4-2707
shall be approved within two (2) years after the financial incentive agreement under this subsection is approved.
(e)
(1)
A targeted business may be eligible for a refund of state and local sales and use taxes for qualified expenditures at the discretion of the director if:
(A)
(i)
The annual payroll of the targeted business for Arkansas taxpayers is greater than one hundred thousand dollars ($100,000) and less than one million dollars ($1,000,000).
(ii)
The payroll requirement in subdivision (e)(1)(A)(i) of this section applies only to the initial eligibility determination and does not preclude a qualified business from receiving incentives if, at any time after the financial incentive agreement is approved, actual payroll does not satisfy the requirements in subdivision (e)(1)(A)(i) of this section; and
(B)
The targeted 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 or expanding 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 targeted business will be located.
(B)
The resolution shall:
(i)
Endorse the business's participation in this sales and use tax refund program; and
(ii)
Specify that the department is authorized to refund local sales and use taxes to the targeted business.
(3)
An approved financial incentive agreement and any other pertinent documentation shall be forwarded to the secretary.
(4)
(A)
(i)
The secretary shall authorize 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 and the Conservation Tax Fund 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.
(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 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.
(5)
(A)
Subject to the approval of the commission, a qualified business may make changes to a project by written amendment to the project plan filed with the commission.
(B)
The commission shall not approve an amendment under subdivision (e)(5)(A) of this section that results in a cost increase of more than twenty-five percent (25%) of the initial project plan.
(6)
All claims for sales and use tax refunds under this subsection shall be denied unless they are filed with the department 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 financial incentive agreements.
(8)
To be eligible for the incentives under this subsection, a targeted business shall meet all payroll creation requirements of an approved financial incentive agreement under §
15-4-2707
or §
15-4-2709
within two (2) years of the date of the approved financial incentive agreement under this subsection or other subsequent date if approved by the director.
Amended by Act 2021, No. 911,§ 2, eff. 7/28/2021.
Amended by Act 2019, No. 327,§ 1, eff. 7/24/2019.
Amended by Act 2019, No. 910,§ 407, eff. 7/1/2019.
Amended by Act 2019, No. 910,§ 406, eff. 7/1/2019.
Amended by Act 2019, No. 910,§ 405, eff. 7/1/2019.
Amended by Act 2019, No. 910,§ 404, eff. 7/1/2019.
Amended by Act 2019, No. 910,§ 403, eff. 7/1/2019.
Amended by Act 2019, No. 910,§ 402, eff. 7/1/2019.
Amended by Act 2019, No. 910,§ 401, eff. 7/1/2019.
Amended by Act 2017, No. 465,§ 1, eff. 3/13/2017.
Acts 2003, No. 182, § 1; 2005, No. 1296, § 4; 2007, No. 1596, § 2; 2009, No. 716, §§ 7, 8.