Posted by Jeffrey Feingold on 05.10.23
As part of the Consolidated Incentive Act of 2003, amended in 2007, the state of Arkansas offers valuable research and development (R&D) tax credits that may offset up to 100 percent of a business’ tax liability in a given year. Arkansas R&D tax credits, which can be carried forward for nine years, are intended to be an incentive for the following four categories of activities:
There are certain stipulations for applying the tax credits, and the following highlights offer details of the eligibility criteria. Of particular note for these categories of Arkansas tax incentives is that an eligible business must apply for the appropriate incentive program with the Arkansas Economic Development Commission (AEDC) before the end of the fiscal year in which the eligible business wishes to qualify state research expenditures. This policy replaces applying for the Certificate of Tax Credit issued by the Arkansas Science and Technology Authority (ASTA), as ASTA has become a division of the AEDC.
In-House Research
New and existing eligible businesses that conduct “in-house” research that qualifies for federal R&D tax credits may qualify for in-house research income tax credits in Arkansas. The credit allowed is 20 percent of qualified research expenditures (QREs) that exceed the base year for a period of three years, and the incremental increase in QREs for the following two years. For a startup in-house research facility, the base year is zero—that means for the first three years following the date of the financial incentive agreement, all eligible expenditures can qualify for the credit.
In-House Research by a Targeted Business
Targeted businesses, at the discretion of the AEDC, may be offered income tax credits equal to 33% of the qualified R&D expenditures incurred each year for up to five years. Targeted businesses are found within six growing business sectors that include: 1) advanced materials and manufacturing systems; 2) agriculture, food and environmental sciences; 3) biotechnology, bioengineering and life sciences; 4) information technology; 5) transportation logistics; and 6) bio-based products. The application for this income tax credit must include a project plan which clearly identifies the intent of the project, the expenditures planned, the start and end dates of the project and an estimate of total project costs.
Targeted businesses must also be in operation for less than five (5) years, have an annual payroll of not less than one hundred thousand dollars ($100,000) or more than one million dollars ($1,000,000), have an equity investment of at least two hundred fifty thousand dollars ($250,000), and pay at least one hundred fifty percent (150%) of the lesser of the county or state average wage.
An income tax credit for R&D earned by targeted businesses may be sold. The business must make application to the AEDC for the sale of credits earned under this section. Upon application and approval by the AEDC, the business may sell earned income tax credits. One additional note: A targeted business earning R&D tax credits is prohibited from earning job creation tax credits or research tax credits for the same expenditure.
R&D in Area of Strategic Value
The Strategic Value R&D incentive is for qualifying businesses that invest in: 1) in-house research in an area of strategic value (i.e., areas having long-term economic or commercial value to the state); or 2) an R&D project offered by the Arkansas Science and Technology Authority. The R&D credit is equal to 33 percent of in-house QREs (up to $50,000 per taxpayer per year) in conducting research qualifying for federal R&D credits. The credit may not be used with in-house research by a targeted business credit.
University-Based R&D
An eligible business that contracts with one or more Arkansas colleges or universities in performing research qualifying for federal R&D credits may qualify for a 33% credit for QREs. This incentive may be used with other in-house R&D credits.
Find Out if Your Activities Qualify
The R&D tax credit can be a lucrative incentive for Arkansas businesses. And given the new permanent nature of the federal tax credit, now is the time to consider whether activities performed by your company qualify for major cash-saving federal and state tax credit opportunities.
Tax Point Advisors, a firm with expertise in working with small and midsize companies, works with businesses that may qualify for R&D tax benefits. For more information, read our e-book: The Business Owner's Guide to R&D Tax Credits.
You may also contact us at (800) 260-4138, or leave us a message below.
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