Arkansas Administrative Code › Agency 003 - DEPARTMENT OF COMMERCE › Division 19 - Arkansas Economic Development Commission › Rule 003.19.20-011 - Consolidated Incentives Act of 2003 Proposed Rule

Current through Register Vol. 49, No. 6, June, 2024
Consolidated Incentive Act of 2003 (Act 182 of 2003, as
				amended) Rules
I.
Introduction
Act 182 of 2003, "Consolidated Incentive Act of 2003," as
				amended and codified at §
									15-4-2701, et
				seq., consolidated six (6) previously-existing incentives into one (1)
				incentive package. The consolidated incentives include:
* Enterprise Zone (Advantage Arkansas);
* Economic Investment Tax Credit (InvestArk);
* Economic Development Incentive Act (Create Rebate);
* Arkansas Economic Development Act (AEDA);
* Emerging Technology Development Act; and
* Biotechnology Training and Development Act.
The Consolidated Incentive Act of 2003, as amended, also
				provides incentives for targeted businesses that allow earned income tax
				credits to be sold, which will allow these targeted businesses to realize the
				benefits of the incentive earlier. In addition, it expands the opportunities
				for qualified businesses to earn income tax credits based on research and
				development expenditures.
Other benefits of consolidating incentives include uniformity
				of definitions and administration of the various incentives.
A financial incentive agreement will be signed with each
				eligible business that qualifies for an incentive under this Act and is
				approved by the Arkansas Economic Development Commission (Commission). The
				financial incentive agreement will be the primary document outlining the
				benefits to be received and the start and end dates of the project. It will
				also serve as the primary source document when the Department of Finance and
				Administration (DFA) audits the business to verify compliance.
The financial incentive agreement shall specify the:
* Effective date of the agreement;
* Term of the agreement, which shall be calculated from the
				date the agreement is signed by the business and the Commission;
* Incentive the business is to receive;
* Investment, wage, and payroll threshold requirements
				necessary to qualify for eligibility;
* Eligible business's responsibilities for certifying
				eligibility requirements; and
* Approved business's responsibilities for failure to meet or
				maintain eligibility requirements.
II.
Definitions
1. "Applied research" means any activity that
			 applies the findings of basic research or other existing knowledge toward
			 discovering new scientific knowledge that has specific commercial objectives
			 with respect to new products, services, processes, or methods;
2. "Average hourly wage" means "Payroll" as
			 defined in §
									15-4-2703(26),
			 divided by the number of hours worked to earn the "payroll". For purposes of
			 counting the number of hours worked for salaried employees, forty (40) hours
			 per week shall be used. The "average hourly wage" threshold determined at the
			 signing of the agreement shall be the threshold for the term of the
			 agreement;
3. "Basic research"
			 means the pursuit of new scientific knowledge or understanding that does not
			 have specific, immediate commercial objectives, although the pursuit may be in
			 fields of present or potential commercial interest;
4. "Board" means the Board of Directors of
			 the Division of Science and Technology of the Arkansas Economic Development
			 Commission;
5. "Business component"
			 means any product, process, computer software, technique, formula, or invention
			 held for sale, lease, or license or used in trade or business of the
			 taxpayer;
6. "Contractual employee"
			 means an employee who:
A. May be included in
			 the payroll calculations of a qualified business under this rule and is under
			 the direct supervision of the qualified business receiving incentives under
			 this rule, but is an employee of a business other than the one receiving
			 incentives under this rule;
B.
			 Otherwise meets the requirements of a new full-time permanent employee of the
			 qualified business receiving incentives underthis rule; and
C. Receives a benefits package comparable to
			 direct employees of the qualified business receiving incentives under this
			 rule;
7. "Corporate
			 headquarters" means:
A. A facility or portion
			 of a facility where the majority of an eligible business's financial, human
			 resources, engineering, legal, strategic planning, information technology,
			 corporate communications, marketing, or other headquarters-related functions
			 are effectuated on either a regional basis or a national basis under the
			 direction of principal executive officers, including without limitation chief
			 executive officers, chief operating officers, chief financial officers, or
			 other senior-level officers based at the facility.
B. A corporate headquarters shall be either a
			 regional corporate headquarters or a national corporate headquarters;
C. The Executive Director of the Arkansas
			 Economic Development Commission, with advice from the Secretary of the
			 Department of Finance and Administration, may determine eligibility for a
			 corporate headquarters facility if a difference exists between a business's
			 disclosed corporate headquarters functions and its North American Industry
			 Classification System primary business activity code;
8. "County or state average hourly wage"
			 means:
A. The weighted average weekly earnings
			 for Arkansans in all industries, both statewide and county-wide, as calculated
			 by the Arkansas Department of Workforce Services in their most recent Annual
			 Covered Employment and Earnings publication, divided by forty (40).
B. The average hourly wage threshold
			 determined at the approval date of the financial incentive agreement is the
			 threshold for the term of the agreement;
9. "Distribution center" means a facility for
			 the reception, storage, and shipping of:
A. A
			 business's own products or products that the business wholesales to retail
			 businesses or ships to its own retail outlets if seventy-five percent (75%) of
			 the sales revenue is from out-of-state customers;
B. Products owned by other companies with
			 which the business has contracts for storage and shipping if seventy-five
			 percent (75%) of the sales revenue of the product owner is from out-of-state
			 customers; or
C. Products for sale
			 to the general public if seventy-five percent (75%) of the sales revenue is
			 from out-of-state customers;
10. "Eligible businesses" means non-retail
			 businesses engaged in commerce for profit that meet the eligibility
			 requirements for the applicable incentive offered by this subchapter, and fall
			 into one (1) or more of the following categories in effect on the effective
			 date of the incentive agreement:
A.
(i) Manufacturers classified in sectors 31-33
			 of the 2017 North American Industrial Classification System ;
(ii) Manufacturers classified in sectors
			 20-39 according to the Standard Industry Classification standards but which are
			 classified under NAICS in another sector;
B.
(i)
			 Businesses primarily engaged in the design and development of software, digital
			 content production and preservation, computer processing and data preparation
			 services, or information retrieval services.
(ii) All businesses in this group shall
			 derive at least fifty-one percent (51%) of their sales revenue from out of
			 state;
(iii) The average hourly
			 wage paid by businesses in this group to employees whose payroll is subject to
			 incentives under this subchapter shall exceed one hundred twenty-five percent
			 (125%) of the lesser of the state or county average hourly wage for the county
			 in which the business locates or expands;
C.
(i)
			 Businesses primarily engaged in film and digital product productions and
			 postproductions.
(ii) All
			 businesses in this group shall derive at least fifty-one percent (51%) of their
			 sales revenue from out of state;
(iii) The average hourly wage paid by
			 businesses in this group to employees whose payroll is subject to incentives
			 under this subchapter shall exceed one hundred twenty-five percent (125%) of
			 the lesser of the state or county average hourly wage for the county in which
			 the business locates or expands;
D. A distribution center or intermodal
			 facility;
E. An office sector
			 business;
F. A national or regional
			 corporate headquarters, as classified in sector 551114 of the 2017 North
			 American Industry Classification System, or as determined by the Executive
			 Director of the Arkansas Economic Development Commission under subdivision
			 (7)(C) of this section;
G.
			 Businesses primarily engaged in research and development in the physical,
			 engineering, and life sciences, as classified in the North American Industry
			 Classification System codes 54173, 541714, and 541715, as in effect January 1,
			 2017;
H.
(i) Scientific and technical services
			 business.
(ii)
(a) All businesses in this group shall derive
			 at least fifty-one percent (51%) of their sales revenue from out of state;
			 and
(b)
(1) The average hourly wage paid by
			 businesses in this group to employees whose payroll is subject to incentives
			 under this Act shall exceed one hundred fifty percent (150%) of the lesser of
			 the county or state average hourly wage for the county in which the business
			 locates or expands;
I. The Executive Director may classify a
			 non-retail business as an eligible business if the following conditions exist:
(i) The business must derive at least
			 fifty-one percent (51%) of its sales revenue from out of state; and
(ii) The average hourly wage paid by the
			 business to employees whose payroll is subject to incentives under this Act
			 shall exceed one hundred twenty-five percent (125%) of the lesser of the state
			 or county average hourly wage for the county in which the business locates or
			 expands;
(J)
(i) Businesses primarily engaged in other
			 support activities for air transportation, as classified in the North American
			 Industry Classification System Code 488190, as in effect on January 1,
			 2017.
(ii) All businesses in this
			 group shall derive at least seventy-five percent (75%) of their sales revenue
			 from out of state; and
(K)
(i)
			 Businesses primarily engaged in support activities for rail transportation, as
			 classified in the North American Industry Classification System Code 488210, as
			 in effect on January 1, 2017.
(ii)
			 All businesses in this group shall derive at least seventy-five percent (75%)
			 of their sales revenue from out of state;
11. "Endorsement resolution" means a
			 resolution approved by the governing body of the municipality or county within
			 whose jurisdiction the project facility is located which:
A. Approves the business's participation in
			 the program; and
B. Specifies that
			 the municipality or county authorizes the Department of Finance and
			 Administration to refund local sales and use taxes to the approved business. A
			 municipality or county can authorize the refund of a tax levied by it but may
			 not authorize a refund of any tax not levied by it;
12. "Equity investment" means capital
			 invested in common or preferred stock, royalty or intellectual property rights,
			 limited partnership interests, limited liability company interests, and any
			 other securities or rights that evidence ownership in private businesses,
			 including a federal agency's award of a Small Business Innovation Research
			 (SBIR) or Small Business Technology Transfer (STTR) grant. For the purposes of
			 this Act, subordinated debt may also be considered an equity
			 investment;
13. "Existing
			 employees" means:
A. Those employees hired by
			 a business before the date the financial incentive agreement was
			 approved.
B.
(i) Existing employees may be considered new
			 full-time permanent employees only if:
(ii)
(a)
			 The position or job filled by the existing employee was created in accordance
			 with the approved financial incentive agreement; and
(b) The position vacated by the existing
			 employee was either filled by a subsequent employee or no subsequent employee
			 will be hired because the business no longer conducts the particular business
			 activity requiring that classification.
C. If the Executive Director and the
			 Secretary of the Department of Finance and Administration find that a
			 significant impairment of job opportunities for existing employees will
			 otherwise occur, they may jointly authorize existing employees to qualify as
			 new full-time permanent employees;
14. "Facility" means a single physical
			 location, which may consist of multiple structures of an eligible business that
			 are conducting similar or complementary activities located on noncontiguous
			 property within the same county, at which the eligible business is conducting
			 its operations.
15. "Film and
			 digital product" means video images and other visual media entertainment
			 content in digital format, film, or videotape, if the video images and other
			 visual media entertainment content meet all the underlying criteria of a
			 qualified production under the Digital Product and Motion Picture Industry
			 Development Act of 2009, §
									15-4-2001
			 et seq., including without limitation:
A. A
			 motion picture;
B. A
			 documentary;
C. A long-form
			 program;
D. A special;
E. A mini-series;
F. A series;
G. A music video;
H. Television programming;
I. Interactive television;
J. An interactive game;
K. A video game;
L. A commercial;
M. Digital media for distribution or
			 exhibition to the general public; and
N. A trailer, pilot, video teaser, or demo
			 created primarily to stimulate the sale, marketing, promotion, or exploitation
			 of future investment
16.
			 "Financial incentive agreement" means an agreement entered into by an eligible
			 business and the Commission to provide the business an incentive to locate a
			 new business or expand or retain an existing business in Arkansas;
17. "Governing authority" means the quorum
			 court of a county or the governing body of a municipality;
18. "In-house research" means:
A.
(i)
			 Applied research supported by the business through the payment of wages and
			 usual fringe benefits specific to research activities of employees of the
			 business or for wages and usual fringe benefits paid through contractual
			 agreements, approved in writing by the Executive Director of the Arkansas
			 Economic Development Commission, with an Arkansas state college, an Arkansas
			 state university, or other Arkansas-based research organization to perform
			 research for a targeted business:
(ii) "In-house research" includes
			 experimental, clinical, or laboratory activity to develop new products, improve
			 existing products, or develop new uses of products, but only to the extent that
			 activity is conducted in Arkansas.
B. "In-house research" does not include tests
			 or inspection of materials or products for quality control, efficiency surveys,
			 management studies, other market research, supplies, the purchase of land, the
			 purchase or rehabilitation of production machinery and equipment, the
			 construction or renovation of buildings, or any other ordinary and necessary
			 expenses of conducting business;
19. "Intellectual property" means an
			 invention, discovery, or new idea that the legal entity responsible for
			 commercialization has legally protected for possible commercial gain, based on
			 the disclosure of the creator;
20.
			 "Intermodal facility" means a facility with more than one (1) mode of
			 interconnected movement of freight or commerce;
21. "Invest" or "Investment" means money
			 expended by or on behalf of a qualified business that seeks to begin or expand
			 operations in Arkansas, and without the infusion of capital, the location or
			 expansion may not occur;
22.
			 "Investment threshold" means the minimum amount of investment in project cost
			 that must be incurred to qualify for eligibility;
23. "Lease" means a right to possession of
			 real property for a specific term in return for consideration, as determined in
			 a lease agreement by both parties;
24. "Modernization" means:
A. An increase in efficiency or productivity
			 of a business through investment in machinery, equipment, or both.
B. "Modernization" does not include costs for
			 routine maintenance or the installation of equipment that does not improve
			 efficiency or productivity, except for expenditures for pollution control
			 equipment mandated by state or federal laws or regulations;
25. "NAICS" means North American
			 Industry Classification System of 2017;
26. "National corporate headquarters" means
			 the sole corporate headquarters in the nation that handles headquarters-related
			 functions on a national basis;
27.
			 "New full-time permanent employee" means:
A.
(i) A position or job that was created
			 pursuant to an approved financial incentive agreement and that is filled by one
			 (1) or more employees or contractual employees who:
(a)
(1)
			 Were Arkansas taxpayers during the year in which the tax credits or incentives
			 were earned.
(2) Existing employees
			 may not be considered new full-time permanent employees unless certain
			 conditions are met as defined herein; and
(b)
(1)
			 Work at the facility identified in the financial incentive agreement.
(2) New employees who do not work at the
			 facility identified in the financial incentive agreement may be counted as new
			 full-time permanent employees if they:
(A)
			 Otherwise meet the definition of "new fulltime permanent employee";
(B) Are subject to the Arkansas Income Tax
			 Withholding Act, Ark. Code Ann. §
														26-51-901 et
			 seq.; and
(C) Meet an average
			 hourly wage threshold equal to or greater than the state average hourly wage
			 for the preceding calendar year.
(ii) For an employee of a qualified business
			 with a regular, standardized work schedule, the position or job held by the
			 employee or employees shall have been filled for at least twenty-six (26)
			 consecutive weeks with an average of at least thirty (30) hours per week each
			 tax year during the term of the agreement. For an employee of a qualified
			 business with an irregular, non-standardized work schedule, (i) the position or
			 job held by the employee or employees had been filled for at least one hundred
			 thirty (130) days during any twenty-six (26) week period of a tax year and (ii)
			 the employee or employees filling the position worked at least seven hundred
			 eighty (780) hours within the tax year.
B. A contractual employee may qualify as a
			 new full-time permanent employee only when offered a benefits package
			 comparable to a direct employee of the business seeking incentives;
28. "Non-retail business" means a
			 business that is not classified in North American Industry Classification
			 System sectors 44-45, as in effect on January 1, 2017;
29. "Office sector business" means:
A. Business operations that support primary
			 business needs, including without limitation customer service, credit
			 accounting, telemarketing, claims processing, and other administrative
			 functions.
B. All businesses in
			 this group shall be non-retail businesses and derive at least seventy-five
			 percent (75%) of their sales revenue from out of state;
30. "Payroll" means the total taxable wages,
			 including overtime and bonuses, paid during the preceding tax year of the
			 eligible business to new full- time permanent employees hired after the date of
			 the approved financial incentive agreement;
31. "Person" means:
A. An individual, trust, estate, fiduciary,
			 firm, joint venture, proprietorship, partnership, limited liability company, or
			 corporation.
B. "Person" includes:
(i) The directors, officers, agents, and
			 employees of any person;
(ii)
			 Beneficiaries, members, managers, and partners; and
(iii) Any county or municipal subdivision of
			 the state;
32. "Preconstruction costs" means the cost of
			 eligible items incurred before the start of construction, including:
A. Project planning costs;
B. Architectural and engineering
			 fees;
C. Right-of-way
			 purchases;
D. Utility
			 extensions;
E. Site
			 preparations;
F. Purchase of
			 mineral rights;
G. Building
			 demolition;
H. Builder's risk
			 insurance;
I. Capitalized start-up
			 costs;
J. Deposits and process
			 payments on eligible machinery and equipment; and
K. Other costs necessary to prepare for the
			 start of construction;
33. "Project costs" means costs associated
			 with the:
A.
(i) Construction of a new plant or
			 facility;
(ii) Expansion of an
			 established plant or facility by adding to the building, machinery and
			 equipment, or support infrastructure; or
(iii) Modernization of an established plant
			 or facility through the replacement of machinery and equipment or support
			 infrastructure that improves efficiency or productivity.
B. "Project costs" does not include:
(i) Expenditures for routine repair and
			 maintenance that do not result in new construction, expansion or
			 modernization;
(ii) Routine
			 operating expenditures;
(iii)
			 Expenditures incurred at multiple facilities; or
(iv) The purchase or acquisition of an
			 existing business unless:
(a) There is
			 sufficient documentation that the existing business was closed or will close;
			 and
(b) The purchase of the
			 existing business will result in the retention of jobs that would have been
			 lost due to the closure.
C. Eligible project costs must be incurred
			 within four (4) years from the date the financial incentive agreement was
			 approved bythe Commission;
34. "Project plan" means a plan submitted to
			 the Commission containing the information required by the Executive Director to
			 determine eligibility for incentives;
35. "Qualified business" means an eligible
			 business that:
A. Has met the qualifications
			 for one (1) or more economic development incentives authorized by this rule;
			 and
B.
(i) Has signed a financial incentive
			 agreement that has been approved by the Commission;
36. "Qualified research
			 expenditures" means the sum of any amounts paid or incurred by an Arkansas
			 taxpayer during the taxable year in funding a qualified research program which
			 has been approved for tax credit treatment under rules promulgated by the
			 Commission;
37. "Region" or
			 "regional" means a geographic area comprised ofthis state and at least one (1)
			 state contiguous to Arkansas;
38.
			 "Regional corporate headquarters" means:
A. A
			 facility or portion of the facility in which the majority of an eligible
			 business's financial, human resources, engineering, legal, strategic planning,
			 information technology, corporate communications, marketing, or other
			 headquarters-related functions are effectuated on a regional basis under the
			 direction of principal executive officers, including without limitation chief
			 executive officers, chief operating officers, chief financial officers, or
			 other senior-level officers based at the facility.
B. A function on a regional basis does not
			 include a function involving manufacturing, processing, warehousing,
			 distributing, wholesaling activities or the operations of a call center;
39. "Scientific and
			 technical services business" means a business:
A. Primarily engaged in performing scientific
			 and technical activities for others, including:
(i) Architectural and engineering design;
			 or
(ii) Computer programming and
			 computer systems design; or
(iii)
			 Scientific research and development in the physical, biological, and
			 engineering sciences;
B.
			 Deriving at least fifty-one percent (51%) of its sales revenue from out of
			 state; and
C. Paying employees
			 whose payroll is subject to incentives under this subchapter average hourly
			 wages exceeding 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;
40. "SIC" means
			 the Standard Industrial Classification system;
41. "Start of construction" means any
			 activity that causes a physical change to the building, property, or both,
			 identified as the site of the approved project, but excluding preconstruction
			 costs;
42. "Strategic research"
			 means research that has strategic economic or long-term commercial value to the
			 state and that is identified in the research and development plan approved by
			 the Executive Director of the Arkansas Economic Development Commission with the
			 advice of the Board of Directors of the Division of Science and Technology of
			 the Arkansas Economic Development Commission;
43. "Support infrastructure" means physical
			 assets necessary for the business to operate, including, without limitation,
			 water systems, wastewater systems, gas and electric utilities, roads, bridges,
			 parking lots, and communications infrastructure;
44. "Targeted businesses" means:
A. A grouping of growing business sectors,
			 not to exceed six (6) which include the following:
(i) Advanced materials and manufacturing
			 systems;
(ii) Agriculture, food and
			 environmental sciences;
(iii)
			 Biotechnology, bioengineering, and life sciences;
(iv) Information technology;
(v) Transportation logistics; and
(vi) Bio-based products;
45. "Technological information"
			 means information derived from basic or applied research that provides an
			 improved practical understanding of the business component; and
46. "Tiers" means the ranking of the
			 seventy-five (75) counties of Arkansas into four (4) divisions that delineate
			 the economic prosperity of the counties and allow for different levels of
			 incentives under the rule.