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Economic Development |
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| » Existing Industry | State IncentivesArkansas is known as a “ Solution State.” We operate the way businesses do, proactively anticipating opportunities and quickly responding to challenges in innovative ways. This approach, combined with our incentive programs, makes Arkansas a profitable choice for locating or expanding a business. Arkansas ’ various incentives are nationally competitive, understandable, and easy to use. The Arkansas Department of Economic Development will focus on your business’s specific needs, conduct a cost/benefit analysis, and design a tailored incentive package. Super Projects In November 2004, Arkansas voters overwhelmingly approved an amendment to the state constitution to help attract super projects. The state can now issue general obligation bonds for projects that create 500 jobs and $500 million in investment. Bonds are limited to 5 percent of state general revenues during the most recent year - currently approximately $180 million in bonds. The governor and legislature will decide to issue bonds, based on an economic impact analysis provided by ADED and the Arkansas Development Finance Authority. Consolidated Incentive Act of 2003 The Consolidated Incentive Act of 2003 provides various incentives programs to assist eligible companies that locate or expand in Arkansas. The programs included in the Consolidated Incentive Act of 2003 are available to the following companies:
The benefits and eligibility thresholds under the incentive programs of the Consolidated Incentive Act are determined in relation to the tier in which the business locates or expands. The State is segmented into four tiers based on poverty rate, population growth, per capita income and unemployment rate with Tier 1 counties being the most prosperous and Tier 4 counties being the least prosperous. The tiers are assigned annually, based on the previous year’s statistics. Advantage Arkansas The Advantage Arkansas program offers a state income tax credit for job creation based on the payroll of the new employees hired as a result of the project. The benefits under this program are determined in relation to the tier in which the business locates. The annual payroll thresholds of the new employees must be met within 24 months following the date the financial incentive arrangement is signed by the Department.
The income tax credit is earned each tax year for a period of five years. The income tax credit cannot offset more than 50 percent of a business’ income tax liability in any one year and may be carried forward for nine years beyond the tax year in which the credit was first earned. Tax Back The Tax Back program provides sales and use tax refunds on the purchase of building materials and machinery and equipment in conjunction with the Advantage Arkansas program. To qualify for the Tax Back program, a business must obtain an endorsement resolution from the local governing authority and be approved by the Arkansas Department of Economic Development. Eligibility Requirements:
InvestArk The InvestArk program provides sales/use tax credit incentives in an effort to stimulate the expansion and modernization of existing eligible Arkansas businesses. Eligibility Requirements:
The credit earned is a percentage of reported eligible project cost and is calculated based upon ½ percent above the sales and use tax rate in effect at the time of application. The credit may be used to offset up to 50 percent of the business’ sales and use tax liability on taxable purchases. The credit is earned in the year the eligible expenditure is made and can be applied against the business’s state direct-pay sales and use tax liability in the year following the year of expenditure. Any unused credits may be carried forward for a period of up to five years. Total project expenditures must be incurred within four years of the date the project is approved by the Department. Create Rebate (discretionary) The Create Rebate program was developed to enable Arkansas to compete with another state’s incentives in highly competitive situations. Create Rebate may only be offered at the discretion of the Director. This incentive requires a minimum payroll of $2,000,000 for the new permanent employees and provides a financial incentive payment based upon a percentage of the company’s annual payroll of the new permanent employees for a period determined by the Director. The benefits under this program are determined in relation to the tier in which the business locates. The annual payroll threshold of the new employees must be met within 24 months following the date the financial incentive agreement is signed by the Department. The benefit received is dependent upon the tier in which the business locates:
ArkPlus (discretionary) This incentive is awarded only at the discretion of the Director. In order to qualify, the business must apply to the Department and be approved by the Director and meet both the investment and payroll thresholds for the tier in which it locates.
The benefit is the same regardless of the tier in which the business locates. The benefit is an income tax credit equal to 10 percent of the investment in land, buildings, equipment and costs relating to licensing and protecting intellectual property (which would include license fees, patent fees and attorney fees to maintain or enhance the patent’s or trademark’s application). The business must reach the investment threshold for the tier in which it is located within four years from the date of the signing of the financial incentive agreement. Targeted Business Incentives The Consolidated Incentive Act also provides special incentives for new and expanding eligible businesses referred to as “targeted businesses.” The targeted incentives are offered only at the discretion of the Director. Targeted businesses are found within six growing business sectors that include:
To qualify as a targeted business, the department must determine that the business falls within one of the six categories noted above, the business must have been in operation for five years or less and must pay, at minimum, 150 percent to 180 percent of the lesser of the state or county average wage. In addition, the targeted business must have an annual payroll of at least $200,000 but no more than $1,000,000 and demonstrate evidence of an equity investment in the targeted business of at least $500,000. Targeted Business Sales and Use Tax Refund This incentive program extends the benefits of a sales and use tax refund for new and expanding eligible businesses referred to as “targeted businesses.” This incentive program grants a sales and use tax refund on the purchases of the material used in the construction of a building or buildings or any addition, modernization or improvement to a new or expanding eligible business and machinery and equipment associated with the building or project. This incentive is not available unless the business has applied for and signed a job creation financial incentive agreement under the Targeted Business Job Creation incentive program. A signed financial incentive agreement for targeted job creation income tax credits must be signed within 24 months of signing a financial incentive agreement for a sales and use tax refund. Targeted Business Job Creation The income tax credit for job creation by targeted businesses is offered to assist with the start-up of businesses in targeted sectors that pay significantly more than the state or county average wage of the county in which the business locates. The benefit for a targeted business for job creation is an income tax credit based on 10 percent of its annual payroll, with a cap of $100,000 per year in earned income tax credits for a business that qualifies and is approved for this incentive. The incentive may be offered for a period not to exceed five years. A unique feature of this incentive is the ability of the eligible business to sell the credits upon the approval of the Director. Research and Development Incentives The Research and Development incentives are intended to provide incentives for university-based research, in-house research, and research and development in start-up, technology-based enterprises. University Based Research and Development An eligible business that contracts with one or more Arkansas colleges or universities in performing research may qualify for 33 percent income tax credit for qualified research expenditures. In-House Research and Development Businesses deemed by the department to fit within the six business sectors classified as “targeted businesses” may enter into a financial incentive agreement for income tax credits based on qualified research and development expenditures. An eligible business may be approved for an income tax credit each year equal to 33 percent of the qualified research and development expenditures incurred each year for the first five years of the financial incentive agreement. This incentive is only offered at the discretion of the Director. The targeted business applying for in-house research and development income tax credits shall comply with all of the qualifications required of targeted businesses:
As with the job creation income tax credits for targeted businesses, the income tax credit for research and development earned by targeted businesses may be sold upon approval by the Department. Research and Development in Area of Strategic Value The Strategic Value Research and Development incentives are for qualifying businesses that invest in: 1) in-house research in an area of strategic value or 2) a research and development project offered by the Arkansas Science and Technology Authority. Research in an 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. The income tax credit is equal to 33 percent of qualified research expenditures. The maximum tax credit that may be claimed by a taxpayer under this program is $50,000 per tax year. Any unused credit may be carried forward for three years beyond the tax year in which it was earned. In addition to the incentives available under the Consolidated Incentive Act of 2003, the State of Arkansas also provides the following incentives for companies that plan to located or expand in Arkansas. Capital Gains Exclusion Capital gains derived form venture capital investments made after January 1, 2001 and held for at least five years are exempt from the Arkansas personal income tax. “Venture capital” means equity financing, broadly defined, including early stage research, development, commercialization, seed capital for startup enterprises, and other risk capital for expansion of entrepreneurial enterprises doing business in Arkansas that are qualified technology-based enterprises doing business in Arkansas, qualified biotechnology enterprises doing business in Arkansas, or qualified technology incubator clients doing business in Arkansas (Act 857 of 2003). Free Port Law Arkansas has a free port law that exempts from property tax those finished goods and raw materials in transit or awaiting shipment to out-of-state customers. Arkansas Child Care Facility Incentive Program Arkansas offers a tax incentive for businesses that provide childcare for their employees. The business may choose the following income tax credit options: 1) a credit of 3.9 percent of the total annual payroll of the child care facility employees, or 2) a one-time $5,000 income tax credit for the first year it provides child care for its employees. The credit may be carried forward for two years or until exhausted, whichever occurs first. Additionally, businesses can receive sales and use tax refunds on the initial cost of construction materials and furnishings purchased to build and equip an approved childcare facility. Training The Arkansas Department of Economic Development’s Customized Training Incentive Program provides intensive pre-employment training for Arkansas workers to meet the increasing technical employment needs of the state’s new and expanding businesses. Additionally, the Existing Workforce Training Program (EWTP) provides financial assistance to Arkansas’ existing businesses and eligible consortia of businesses for delivering customized, industry specific training. The primary objective of the training is to upgrade the knowledge and skills of the existing workforce and to increase the capacity of state-supported educational institutions to supply the on-going training needs of Arkansas companies. Financial assistance is available in the form of a grant or an income tax credit. The amount of support is the lesser of:
For companies that use their own employees or company-paid consultants to deliver classroom training to their employees, the amount of the Arkansas income tax credit, set by the governing council, shall not exceed $15 per instructional hour. The maximum support any one company may receive is $50,000 per calendar year. The tax credit must be used for the tax year in which the credit is earned. There is no carry-forward for the credit. Tourism Development The Arkansas Tourism Development Act provides state sales tax credits and income tax credits to eligible businesses initiating approved tourist attraction projects. Sales tax credits shall be determined in accordance with the following criteria:
Additionally, eligible businesses may receive a credit on state income tax equal to the average hourly wage of each net new full-time permanent employee times a multiplier of 100, with a cap of $3,000 per employee. The multiplier increases from 100 to 400, with a cap of $6,000 per employee when a business locates in a county that had an unemployment rate equal to or in excess of 150 percent of the state’s average unemployment rate for the previous calendar year when the state’s annual average unemployment rate is 6 percent or below. When the state’s annual average unemployment rate exceeds 6 percent, high unemployment rates are those that are at least 3 percent higher than the state’s annual average unemployment rate. Both tax credits begin in the year in which the new employees are hired. Any unused portion of the credit may be applied against corporate income tax for the succeeding nine years. Recycling Equipment Tax Credit Act 654 Act 654 of 1993 allows Arkansas taxpayers to receive income tax credits for the purchase of equipment used exclusively for reduction, reuse, or recycling of solid waste material for commercial purposes, whether or not for profit, and the cost of installation of such equipment by outside contractors. Such equipment must be used in the collection, separation, processing, modification, conversion, treatment or manufacturing of products containing at least 50 percent recovered materials of which at least 10 percent is post-consumer waste. The amount of the tax credit shall equal 30 percent of the cost of eligible* equipment and installation costs. Credits may be carried over a maximum of three consecutive years following the taxable year in which the credits accrued. Taxpayers receiving credit under this Act for the purchase of machinery and equipment shall not be entitled to any other state or local tax credit or deduction based on the purchase of the machinery or equipment, except normal depreciation. * Eligibility is determined by the Arkansas Department of Environmental Quality. Arkansas Motion Picture Incentive Act Qualifying motion picture production businesses spending more than $500,000 within six months, or $1 million within 12 months, in conjunction with the filming or producing of one feature film, telefilm, music video, documentary, episodic television show or commercial advertisement may receive a refund of state sales and use taxes paid on qualified expenditures incurred in conjunction with the project. Tuition Reimbursement Act This Act provides a 30 percent income tax credit to eligible businesses for the costs they incur in reimbursing employees for tuition, books, and fees for training or courses at accredited Arkansas post secondary educational institutions to improve job skills. A business’ tax credit cannot offset more than 25 percent of their income tax liability in any year. An employee must be a permanent full-time employee to qualify. Eligible businesses include:
Arkansas Public Roads Improvement Credit Act This Act provides an income tax credit up to 33 percent to any individual, fiduciary, or corporation subject to Arkansas state income tax that contributes to the Public Roads Incentive Fund of the Department of Economic Development. Each taxpayer that contributes to the Fund may make a general contribution or may designate a project for which the contribution is earmarked. The credit allowed by this Act shall not exceed 50 percentage of the taxpayer’s net Arkansas income tax after all credits and reductions have been applied, however, amounts over 50% can be carried forward up to three years. Small Business Loan Program This program stimulates small businesses by providing up to one-half of the amount of participation loans referred by approved community lenders. A small business is one with fewer than 50 full-time employees and less than $1 million in annual gross sales, excluding agricultural production. The Department’s share cannot exceed 50 percentage of the total loan amount and cannot be less than $2,500 or more than $40,000. The business must provide the lender with a sound business plan, proof of credit worthiness, collateral and a demonstrated need. Proceeds may be used to purchase machinery and equipment, to stabilize working capital and/or to purchase, construct or renovate commercial real estate. Additional Incentives
More detail on the incentives administered by the Arkansas Department of Economic Development can be viewed at the Department’s website at www.1800arkansas.com. Click on “Financing, Incentives and Taxation” on the left side of the home page.
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