Economic Incentives

Arkansas Economic Incentives

Arkansas is known as a “Solutions 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.

 

Advantage Arkansas

(Arkansas Enterprise Zone Program)

The Advantage Arkansas Program provides income tax credits and sales and use tax refunds to qualifying businesses that create new jobs as a result of location, expansion, or facility modernization projects anywhere in Arkansas.

To qualify for Advantage Arkansas, a business’s operations must fit one of the following descriptions continuously and throughout the project term:

  • Manufacturers in SIC codes 20-39 and businesses primarily engaged in commercial physical or biological research as classified by SIC code 8731 that create one or more net new full-time permanent jobs or
  • Eligible computer firms and businesses primarily engaged in motion picture production with no retail public sales that derive at least 60 percent of their revenue from out-of-state sales and create 25 or more net new full-time permanent jobs or
  • Distribution centers, office sector businesses, corporate or regional headquarters, or trucking/distribution terminals with no retail public sales that create 25 or more net new full time permanent jobs.

 

Income Tax Credit

Advantage Arkansas provides a credit on income tax equal to the average hourly wage of each new worker times 100, with a $3,000 cap per employee. The multiplier increases from 100 to 400 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; there is a $6,000 cap per employee in these counties. Employees must be Arkansas taxpayers to qualify for the credit. The income tax credit begins in the year in which the new employees are hired. Any unused portion of the credit may be applied against income tax for the succeeding nine years.

Example:

Number of new employees
 Average
hourly
x wage
 
x Multiplier
 
= Tax credit
100 x 10.00 x 100 = $100,000

 

Sales and Use Tax Refunds

Advantage Arkansas participants are also eligible for a refund of sales and use taxes for building materials and taxable equipment connected with the eligible project. To receive refunds, a local resolution must be passed and an application approved by the Arkansas Department of Economic Development.

InvestArk

(Manufacturer’s Investment Tax Credit Program (Cannot be used in conjunction with Advantage Arkansas)

The Manufacturer’s Investment Tax Credit is available to businesses established in Arkansas for two years or longer investing $5 million or more in plant or equipment ($6 million for projects involving multiple Arkansas locations) for new construction, expansion, or modernization. The business must be approved for the program 30 days prior to beginning construction. A credit against the business’s state sales and use tax liability equal to 7 percent of the total project cost, not to exceed 50 percent of the total sales and use tax liability in a single year, is allowed on approved project expenditures. All projects can be audited upon completion to confirm the tax credits.

The credit can be applied against the business’s state sales and use tax liability in the year following the expenditure. If the entire credit cannot be used in the year earned, the remainder may be carried forward for six years, or until the credit is entirely used. Total project expenditures must be incurred within five years of the project plan certification.

Businesses eligible for this incentive include

  • Manufacturers in SIC codes 20-39 and businesses primarily engaged in commercial physical and biological research as classified by SIC code 8731 or
  • Eligible computer firms and businesses primarily engaged in motion picture production with no public retail sales that derive at least 60 percent of their revenue from out-of-state sales or
  • Distribution centers, office sector businesses, or corporate or regional headquarters with no retail public sales.

 

Tourism Development

The Arkansas Tourism Development Act provides corporate income tax credits and state sales tax credits to businesses initiating approved tourism attraction projects.

Sales tax credits shall be determined in accordance with the following criteria:

  • Eligible minimum project costs must be $500,000.
  • The percentage of sales tax credits, ranging between 10 and 25 percent, shall be determined by total approved project costs.
  • Sales tax liability is determined by the incremental sales tax liability incurred as a result of the project.
  • Other review criteria requested by the Arkansas Department of Economic Development may be requested to determine whether the tourism attraction project meets the intent of the Act.

Additionally, eligible businesses may receive a credit on corporate 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 and the cap increases to $6,000 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 preceding calendar year. Employees must be Arkansas taxpayers.

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 of 1993 allows Arkansas taxpayers to receive a tax credit 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 ten 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 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.

 

Arkansas Biotechnology Development and Training Act of 1997

The Arkansas Biotechnology Development and Training Act of 1997 offers income tax credits to

 

Arkansas taxpayers engaged in eligible biotechnical business development. The first credit is a 5 percent income tax credit applied to costs to build and equip eligible biotechnical facilities. Allowable expenditures include costs associated with the purchase, construction, expansion, improvement, and/or renovation of biotechnical facilities, and costs to purchase and install equipment.

The second credit allows a 30 percent income tax credit both for eligible employee training costs and for contracts with state-supported institutions of higher education to conduct qualified cooperative research projects. Credit for training shall not include salaries and wages of the employees being trained and cannot exceed $10,000 per employee.

The third credit allows an income tax credit for qualified research in biotechnology, including but not limited to the cost of purchasing, licensing, developing, or protecting intellectual property. This credit is equal to 20 percent of the amount the cost of qualified research exceeds the cost of such research in the base year.

An additional credit was added in 1999 to provide an income tax credit equal to 30 percent of the cost of buildings, equipment, and higher education partnerships and licenses for intellectual property necessary to produce advanced biofuels.

Income tax credits shall be used to offset the first $50,000 of income tax liability arising during the credit year and 50 percent of any remaining income tax liability for the year. Unused credit may be carried forward for nine taxable years after the credit year in which the credit originated.

Taxpayers receiving credit under this Act shall not be entitled to any other state or local tax credit or deduction for the claimed items, except normal depreciation.

Customized Training Incentives

The Customized Training Incentives Program provides pre-employment training for Arkansas workers to meet the skills needed in the state’s new and expanding businesses.

The Customized Training Inventive team works with the Community and Business Development Team during the negotiation process. After a commitment to the state is made, a specific Customized Training Incentives Coordinator is assigned to develop the training plan with the business.

The Existing Workforce Training Program provides financial assistance to Arkansas’ businesses and eligible consortia of businesses for upgrading the skills of the existing workforce. Skills upgrade training is defined as instruction conducted in a classroom environment at a work site, an educational institution, or a neutral location, that provides an existing, full-time employee with the new skills necessary to enhance productivity, improve performance, and/or retain employment.

Eligible businesses include the following:

  • Manufacturers in SIC codes 20-39
  • Eligible computer firms with no public retail sales that derive at least 60 percent of their revenue from out-of-state sales
  • Businesses primarily engaged in commercial physical and biological research as defined by SIC code 8731

Financial assistance is available in two forms. For businesses or consortia that use state-supported educational institutions for eligible training, grant amounts shall be the lesser of _ of the amount paid for such training or the instructional hourly rate established by the governing council, not to exceed $50 per instructional hour, times the number of instructional hours delivered. Tax credits are available to eligible businesses that conduct internal training using business trainers or

consultants. Tax credits cannot exceed $15 per instructional hour. Businesses may not receive grants and tax credits for the same training.

Child Care Facility Tax Incentive

Arkansas offers a tax incentive for businesses interested in providing child care for business employees.

A business may choose between two state income tax credit options: 1) a credit of 3.9 percent of the total annual payroll of the employees working in the child care facility, or 2) a one-time $5,000 income tax credit for the first year. The income tax credit may be carried forward for two years or until used entirely, whichever occurs first.

In addition to either option, businesses may receive a refund on sales and use taxes on construction materials and furnishings purchased to equip an approved child care facility.

To qualify for these incentives, the business must be approved to operate an early child care program. The business may choose to operate the facility or contract the operations.

 

 

Freeport Law

Arkansas has a Freeport law that exempts from property tax those finished goods and raw materials in transit or awaiting shipment to out-of-state customers.

 

Additional Benefits

When a business locates in Arkansas, it can take advantage of the following additional benefits:

  • favorable unemployment insurance and workers’ compensation rates;
  • favorable individual and corporate income tax rates; and
  • a right-to-work state, as guaranteed by the Arkansas Constitution.

Discretionary Incentives

Create Rebate Program
Negotiated by the Arkansas Department of Economic Development

Businesses hiring specified net new full-time permanent employees within 24 months after completion of an approved expansion and/or new location project may be eligible for the Create Rebate Program.

Under this program, negotiated by the Arkansas Department of Economic Development, businesses may receive a financial incentive to be used for a specific purpose from 3.9 to 5 percent of the annual payroll of the net new full-time permanent employees. The financial incentive increases to five percent in areas with an unemployment rate in excess of ten percent, or more than three percent above the state’s average unemployment rate for the preceding calendar year. Incentives are available 12 months after the business has hired the minimum number of certified net new full-time permanent employees.

Eligible businesses include the following:

  • Manufacturers in SIC codes 20-39 that create 100 or more net new full-time permanent jobs.
  • Eligible computer businesses with no retail public sales that derive at least 60 percent of their revenue from out-of-state sales that create 25 or more net new full-time permanent jobs.
  • Businesses primarily engaged in commercial physical and biological research as defined by SIC code 8731 that create 50 or more net new full-time permanent jobs.
  • Businesses primarily engaged in motion picture production with no retail public sales that derive at least 60 percent of their revenue from out-of-state sales that create at least 50 or more net new full-time permanent jobs.
  • Distribution centers with no retail public sales that create at least 100 net new full-time permanent jobs.
  • Office sector businesses or national, corporate, or regional headquarters with no retail public sales that create at least 50 or more net new full-time permanent jobs.

 

Arkansas Economic Development Act (AEDA)
Negotiated by the Arkansas Department of Economic Development

To utilize the AEDA program, businesses must sign a financial agreement prior to construction outlining the terms of the incentives and including the following:

  • The business must invest at least $5 million in a plant construction or expansion project;
  • Businesses must employ at least 100 net new full-time permanent employees within 24 months of the date that the financial agreement is signed and maintain at least 100 net new full-time permanent employees at the new project location for the duration of the incentive period. Failure to do so could result in termination of the program and reimbursement of the incentives credited plus penalty and interest;
  • Businesses must receive an endorsement resolution from the local governing body endorsing the project for the program; and
  • The AEDA program requires a one-time administration fee of $2,500.

There are two basic incentives provided by the AEDA program. The first, a state corporate income tax credit, provides tax credits up to 100 percent of the total amount of annual debt service (principal and interest) paid to the lender(s) financing the project. The amount of income tax credit taken during any tax year shall not exceed the annual Arkansas income tax liability resulting from the project. Income tax credits shall be as follows:

Qualifying Wage Ratio* Tax Credit

Less than 125% None

125-149% 50%

150-174% 75%

175% or above 100%

*The lesser of the county or state annual average.

Projects meeting all eligibility criteria that locate in high unemployment counties can be eligible for a credit up to 100 percent at the discretion of the Director of the Department of Economic Development so long as the average hourly wage rate exceeds 125 percent of the county or state annual average wage.