Arkansas Administrative Code › Agency 168 - Arkansas Economic Development Commission › Rule 168.00.11-001 - Rules for the Consolidated Incentive Act of 2003, the Equity Investment Tax Credit Act of 2007 and the Minority Business Enterprise Certification program

Current through Register Vol. 49, No. 6, June, 2024
I.
Introduction
Act 182 of 2003 consolidates six previously existing incentives
			 into one 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 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 the 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
			 Commission. The financial incentive agreement will be the primary document
			 outlining the benefits to be received and the start and end date of the
			 project. It will also serve as the primary source document when the Department
			 of Finance and Administration audits the business to verify compliance.
The financial incentive agreement shall:
* Specify the effective date of the agreement;
* Specify the term of the agreement, which shall be calculated
			 from the date the agreement is signed by the business and the
			 Commission;
* Specify the incentive the business is to receive;
* Specify the investment and/or payroll threshold requirements
			 necessary to qualify for eligibility.
* Specify the eligible business' responsibilities for certifying
			 eligibility requirements; and
* Specify the approved business' responsibilities for failure to
			 meet or maintain eligibility requirements.
II.
Definitions
1.
		  "Applied research" means any activity that seeks to utilize, synthesize, or
		  apply existing knowledge, information, or resources to the resolution of a
		  specific problem, question, or issue;
2. "The Authority" means the Arkansas Science
		  and Technology Authority.
3.
		  "Average hourly wage" means "Payroll" as defined in §15-4-2703(28),
		  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" determined at the signing of
		  the agreement shall be the threshold for the term of the agreement;
4. "Basic research" means any original
		  investigation for the advancement of scientific or technological
		  knowledge;
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 business qualifying for benefits under this act
		  and is under the direct supervision of the business receiving benefits under
		  this act, but is an employee of a business other than the one receiving
		  benefits under this act;
B.
		  Otherwise meets the requirements of a new full-time permanent employee of the
		  business receiving benefits under this act; and
C. Receives a benefits package comparable to
		  direct employees of the business receiving benefits under this act;
7. "Corporate headquarters" means:
A. The facility or portion of a facility
		  where corporate staff employees are physically employed, and where the majority
		  of the company's financial, personnel, legal, planning, information technology,
		  or other headquarters related functions are handled either on a regional basis
		  or national basis. These facilities include establishments primarily engaged in
		  administering, overseeing, and managing other establishments of the company or
		  enterprise as classified in sector 551114 of the North American Industrial
		  Classification System (NAICS) effective January 1, 2007;
B. A corporate headquarters must be a
		  regional corporate headquarters or a national corporate headquarters;
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 signing of the financial incentive agreement shall
		  be the threshold for the term of the agreement;
9. "Commission" means the Arkansas Economic
		  Development Commission;
10.
		  "Director" means the Executive Director of the Arkansas Economic Development
		  Commission;
11. "Distribution
		  center" means a facility for the reception, storage, and shipping of:
A. A business' 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 revenues are 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 revenues of the product owner are
		  from out-of-state customers; or
C.
		  Products for sale to the general public if seventy-five percent (75%) of the
		  sales revenues are from out-of-state customers;
12. "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:
A.
(i)
		  Manufacturers classified in sectors 31-33 in the North American Industrial
		  Classification System (NAICS), as in effect January 1, 2007.
(ii) Manufacturers classified in sectors
		  20-39 according to the Standard Industrial Classification (SIC) standards but
		  which are classified under NAICS in another sector;
B.
(i)
		  Businesses primarily engaged in the design and development of prepackaged
		  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 seventy-five percent (75%) of their sales revenue from out of
		  state;
C.
(i) Businesses primarily engaged in motion
		  picture productions;
(ii) All
		  businesses in this group shall derive at least seventy-five percent (75%) of
		  their sales revenue from out of state;
D. A distribution center or intermodal
		  facility;
E. An office sector
		  business;
F. A national or regional
		  corporate headquarters, North American Industrial Classification System (NAICS)
		  Code 551114, as in effect January 1, 2007;
G. Firms primarily engaged in commercial,
		  physical and biological research as classified in the North American Industrial
		  Classification System (NAICS) code 541710, as in effect January 1,
		  2007;
H.
(i) Scientific and technical services
		  business.
(ii)
(a) All businesses in this group shall derive
		  at least seventy-five percent (75%) of their sales revenue from out of state;
		  and
(b)
(1) The average hourly wages paid by
		  businesses in this group shall exceed one hundred fifty percent (150%) of the
		  county or state average hourly wage, whichever is less.
(2) The average hourly wage threshold
		  determined at the signing of the financial incentive agreement shall be the
		  threshold for the term of the agreement; and
I. The Director may classify a
		  non-retail business as an eligible business if the following conditions exist:
(i) The business must derive at least
		  seventy-five percent (75%) of its sales revenue from out of state;
		  and
(ii) The business proposes to
		  pay wages in excess of one hundred ten percent (110%) of the county or state
		  average wage, whichever is less.
13. "Endorsement resolution" means a
		  resolution approved by the governing body of the municipality or county within
		  whose jurisdiction the project facility is located which:
1. Approves the specific entity's
		  participation in the program; and
2. 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.
14.
		  "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;
15. "Existing employees" means:
A. Those employees hired by the business
		  before the date the financial incentive agreement was signed.
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 signed 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 Director of
		  the Economic Development Commission and the Director 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;
16.
		  "Facility" means a single physical location at which the eligible business is
		  conducting its operations. A physical location may consist of more than one
		  facility of the eligible business located on non-contiguous property within the
		  same incorporated city that is conducting similar or complimentary
		  activity.
17. "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 an existing business in Arkansas;
18. "Fund" means the Arkansas Economic
		  Development Incentive Fund;
19.
		  "Governing authority" means the quorum court of a county or the governing body
		  of a municipality;
20. "In-house
		  research" means:
A.
(i) Applied research supported by the
		  business through the purchase of supplies for research activities and payment
		  of wages and usual fringe benefits for employees of the business who conduct
		  research activities in research facilities:
(a) Dedicated to the conduct of research
		  activities;
(b) Operated by the
		  business; and
(c) Performed
		  primarily under laboratory, clinical, or field experimental conditions for the
		  purpose of reducing a concept or idea to practice, or to advance a concept or
		  idea, or improvement thereon, to the point of practical application.
(ii) "In-house research" includes
		  experimental 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.
(iii)
		  "In-house research" may also include contractual agreements with one or more
		  Arkansas colleges or universities, or other research organizations to perform
		  research for a "targeted business" as defined in §15-4-2703, provided that
		  the President of the Arkansas Science and Technology Authority determines in
		  writing, in advance of the research being performed, that the research by the
		  college or university or other research organization is essential to the core
		  function of the targeted business.
B. "In-house research" does not include tests
		  or inspection of materials or products for quality control, efficiency surveys,
		  management studies, other market research, or any other ordinary and necessary
		  expenses of conducting business;
21. "Intellectual property" means an
		  invention, discovery, or new idea that the legal entity responsible for
		  commercialization has decided to legally protect for possible commercial gain,
		  based on the disclosure of the creator;
22. "Intermodal facility" means a facility
		  with more than one (1) mode of interconnected movement of freight, commerce, or
		  passengers;
23. "Investment
		  threshold" means the minimum amount of investment in project cost that must be
		  incurred in order to qualify for eligibility;
24. "Invest" or "Investment" means money
		  expended by or on behalf of an approved eligible business that seeks to begin
		  or expand operations in Arkansas and, without the infusion of capital, the
		  location or expansion may not occur.
25. "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.
26. "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;
27. "National corporate
		  headquarters" means the sole corporate headquarters in the nation that handles
		  headquarters related functions on a national basis;
28. "New full-time permanent employee" means:
A.
(i) A
		  position or job that was created pursuant to the signed financial incentive
		  agreement and that is filled by one (1) or more employees or contractual
		  employees who were:
(a)
(1) 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 full-time 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) 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.
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.
29. "Non-retail business" means a
		  business that derives less than ten percent (10%) of its total Arkansas revenue
		  from sales to the general public;
30. "Office sector business" means:
A. Business operations that support primary
		  business needs, including, but not limited to, customer service, credit
		  accounting, telemarketing, claims processing, and other administrative
		  functions;
B. All businesses in
		  this group must be non-retail businesses and derive at least seventy-five
		  percent (75%) of their sales revenue from out of state;
31. "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 signed financial incentive agreement;
32. "Person" means:
A. An individual, trust, estate, fiduciary,
		  firm, 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;
33. "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;
34. "Project" 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, production equipment, or support
		  infrastructure; or
(iii)
		  Modernization of an established plant or facility through the replacement of
		  production or processing equipment or support infrastructure that improves
		  efficiency or productivity.
B. "Project" 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; and
(b) The purchase of the existing business
		  will result in the retention of the 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 signed by the Commission;
35. "Project plan" means a plan:
A. Submitted to the Commission containing
		  such information as may be required by the Director to determine eligibility
		  for benefits; and
B. That, if
		  approved, is a supplement to the financial incentive agreement;
36. "Qualified business" means an
		  eligible business that:
A. Has met the
		  qualifications for one (1) or more economic development incentives authorized
		  by this act; and
B.
(i) Has signed a financial incentive
		  agreement with the Commission; or
(ii) Is involved in a research and
		  development program administered by the Arkansas Science and Technology
		  Authority;
37. "Qualified research expenditures" means
		  the sum of any amounts which are 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 and regulations promulgated by
		  the Commission;
38. "Region" or
		  "regional" means a geographic area comprised of this state and a contiguous
		  state;
39. "Regional corporate
		  headquarters" means:
(A) the location where a
		  headquarters' staff performs functions on a regional basis that involve the
		  services of administration, planning, research and development, marketing,
		  personnel, legal, computer, or telecommunications;
(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;
40. "Research
		  and development programs of the Arkansas Science and Technology Authority"
		  means statutory programs operated by the Arkansas Science and Technology
		  Authority under §§ 15-3-101 to 15-3-135;
41. "Research area of strategic value" means
		  research in fields having long-term economic or commercial value to the state,
		  and that have been identified in the research and development plan approved
		  from time to time by the Board of Directors of the Arkansas Science and
		  Technology Authority;
42.
		  "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
B. Selling expertise; or
C. Having production processes that are
		  almost wholly dependent on worker skills; and
D. Deriving at least seventy-five percent
		  (75%) of their sales revenue from out of state; and
E. Paying average hourly wages that exceed
		  one hundred fifty percent (150%) of the county or state average hourly wage,
		  whichever is less;
43.
		  "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 engineering surveys, soil tests, land clearing, and extension of
		  roads and utilities to the project site;
44. "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 from time to time by
		  the Board of Directors of the Arkansas Science and Technology
		  Authority;
45. "Support
		  infrastructure" means physical assets necessary for the business to operate,
		  including, but not limited to, water systems, wastewater systems, gas and
		  electric utilities, roads, bridges, parking lots and communication
		  infrastructure;
46. "Targeted
		  businesses" means:
A. A grouping of growing
		  business sectors, the businesses of which:
(i)
		  Have been operating in the state for less than five (5) years. For purposes of
		  determining this criteria, the targeted business is considered operating in
		  Arkansas when the minimum annual payroll threshold is met and the minimum
		  equity investment has been constructively received. Once these thresholds are
		  met, the business has five (5) years in which it is eligible to apply as
		  targeted business;
(ii) Pay at
		  least one hundred and fifty percent (150%) of the lesser of the county or state
		  average wage; and
(iii) That have
		  been selected to receive special benefits;
B. Those groupings, not to exceed six (6),
		  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;
(vi) Bio-based
		  products;
47.
		  "Technological information" means information derived from basic or applied
		  research that provides an improved practical understanding of the business
		  component; and
48. "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 benefits.