Arkansas Incentives and Workforce Development Guide
This incentives guide is brought to you by Business Facilities LiveXChange, the only event that has been designed for corporate executives and business owners who are responsible for their companies' site selection projects. Click here to learn more or register for the invitation-only site selection conference.
For a list of Arkansas economic development agencies that can help with the site selection process, visit our Online Site Seekers’ Guide.
Create Rebate Program: An incentive that may be offered at the discretion of the director of the Arkansas Economic Development Commission in highly competitive situations, it provides annual cash payments based on a company’s annual payroll for new, full-time, permanent employees. The benefit depends on the tier of the county in which the company locates. The incentive is available for non-retail businesses engaged in commerce for profit that fall into certain categories.
Targeted Business Incentives: Targeted businesses may qualify for three special incentives designed to help new, knowledge-based businesses in their early years. These discretionary incentives are for start-up companies in emerging sectors (Advanced materials and manufacturing systems; Agriculture, food and environmental sciences; Biotechnology, bioengineering and life sciences; Information technology; Transportation logistics; and Bio-based products):
- A refund of sales and use taxes paid on the purchase of building materials and machinery and equipment associated with the approved project
- A transferable income tax credit equal to 10% of payroll for up to five years
- A transferable income tax credit equal to 33% of eligible research and development expenditures
Companies must be less than five years old; have an annual payroll between $100,000 and $1 million; show proof of an equity investment of at least $250,000; pay at least 150% of the lesser of the state or county average hourly wage where the business is located; and meet requisite payroll thresholds.
Research & Development Incentives:
- University Based Research and Development: An eligible business that contracts with one or more Arkansas colleges or universities in performing research may qualify for a 33% income tax credit for qualified research expenditures.
- In-House Research and Development: New and existing eligible businesses that conduct in-house research that qualifies for federal research and development tax credits may qualify for in-house research income tax credits. The credit allowed is 20% of qualified research expenditures that exceed the base year, for a period of three years and the incremental increase in qualified research and expenditures for the succeeding two years. The income tax credit earned for in-house research and development may be used to offset 100% of the businesses’ state income tax liability.
- Research and Development in Area of Strategic Value: For qualifying businesses that invest in: 1) in-house research in an area of strategic value—fields having long-term economic or commercial value to the state, and that have been identified in the research and development plan; or 2) a research and development project offered by the Arkansas Science and Technology Authority. The income tax credit is equal to 33% of qualified research expenditures with a maximum of $50,000 per tax year.
Tourism Development Incentives: The Arkansas Tourism Development Act provides state sales and use tax credits and income 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 $1 million, except in high unemployment counties (Arkansas, Chicot, Clay, Crittenden, Dallas, Desha and Mississippi) where it is $500,000.
- Sales tax credits are calculated based upon 15% (25% in high unemployment counties) of eligible project cost for projects spending more than $1 million.
- Sales tax credit may be applied against the business’s increased sales tax liability resulting from the project.
- Other review criteria may be requested to determine whether the project meets the intent of the Act.
Additionally, eligible businesses may receive a state income tax credit equal to 4% of the annual payroll of each new, full-time, permanent employee. The income tax credits begin in the year in which the new employees are hired.
Non-Profit Incentives: Provides an incentive payment (payroll rebate) equal to 4% of the payroll of the new, full-time, permanent employees for a period of up to five years. Eligible non-profit organizations must create a payroll for new, full-time, permanent employees of at least $500,000 and pay an average wage in excess of 110% of the state or county average wage (whichever is less) in the county in which the organization locates or expands. In addition, the non-profit organization must receive 75% of its income from out-of-state sources. In addition to the payroll rebate, this program also provides a sales and use tax refund for eligible projects that invest a minimum of $250,000. The refund is eligible for taxes paid on construction materials, and machinery and equipment associated with the approved project.
Tax Back (Sales & Use Tax Refund): Advantage Arkansas participants investing at least $100,000 are eligible for a refund of sales and use taxes for building materials and taxable machinery and equipment associated with the approved project. The business must sign a job-creation agreement under the Advantage Arkansas program within 24 months of signing the Tax Back agreement. Applicants for Tax Back must obtain an endorsement resolution from the local governing authority that authorizes the refund of its local taxes. Applicants must meet the same qualification criteria as Advantage Arkansas and must be approved by the Arkansas Economic Development Commission.
Investark (Sales & Use Tax Credit): Available to businesses established in Arkansas for at least two years that invest $5 million or more in plant or equipment for new construction, expansion or modernization. The business must be approved for the program prior to beginning construction or incurring eligible project costs. The business must obtain a direct-pay sales and use tax permit from the State of Arkansas. All project expenditures must be incurred within four years of the project eligibility date. All projects will be audited upon completion to confirm the tax credits.
Repair and Replacement Parts Refund (Sales and Use Tax Refund): Act 1404 of 2013 establishes two options by which certain state sales and use taxes relating to the partial replacement and repair of machinery and equipment used directly in manufacturing may be refunded to eligible taxpayers beginning July 1, 2014.
The first option, which provides for a refund of one percentage point (1%) of the 5.875% sales and use taxes levied under §§ 26-52-301, 26-52-302, 26-53-106 and 26-53-107, may be claimed by a taxpayer for the purchase and installation of certain machinery and equipment used directly in manufacturing and processing. To qualify for this refund, a taxpayer must hold a direct pay sales and use tax permit from the Arkansas Department of Finance and Administration (DFA).The second option, which provides for an increased refund of all sales and use taxes (5.875%) levied under §§ 26-52-301, 26-52-302, 26-53-106 and 26-53-107, is a discretionary incentive that may be offered by the Director of the Arkansas Economic Development Commission (AEDC) to a taxpayer who holds a direct pay sales and use tax permit from DFA and undertakes a major maintenance and improvement project of at least $3 million to purchase and install certain machinery and equipment used directly in manufacturing and processing.
Advantage Arkansas (Income Tax Credit): Offers a state income tax credit for job creation based on the payroll of new, full-time, permanent employees hired as a result of the project. The proposed average hourly wage of the new employees hired as a result of the project must be equal to or greater than the lowest county average hourly wage. The Advantage Arkansas income tax credit is calculated based upon which county tier the project is located in and earned each tax year for a period of five years. Arkansas’s counties are ranked into four tiers based on poverty rate, population growth, per capita income and unemployment rate. The income tax credit cannot offset more than 50% 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. The credit begins in the tax year in which the new employees are hired. Employees must be Arkansas taxpayers.
ArkPlus: An incentive that may be offered at the discretion of the director of the Arkansas Economic Development Commission in highly competitive situations, it is a state income tax credit program that provides tax credits of 10% of the total investment in a new location or expansion project. ArkPlus requires both a minimum investment and a minimum payroll of new, full-time, permanent employees hired as a result of the project, depending on the tier in which the business locates. Arkansas’s counties are ranked into four tiers based on poverty rate, population growth, per capita income and unemployment rate. Total project expenditures must be incurred within four years of the date the project is approved by AEDC. New, full-time, permanent employees must be hired within 24 months of the date the financial agreement is signed. The income tax credits may be used to offset 50% of the Arkansas income tax liability in the tax year the credit is earned. Any unused credits may be carried forward for nine years beyond the tax year in which the credit was first earned.
Equity Investment Tax Credit: An incentive that may be offered at the discretion of the director of the Arkansas Economic Development Commission in highly competitive situations, it is targeted toward new, technology-based businesses that pay wages in excess of the state or county average wage. This program allows an approved business to offer an income tax credit to investors purchasing an equity investment in the business. The income tax credits issued under this program are equal to 33 1/3% of the amount invested by an investor in an eligible business. The income tax credit earned may be used to offset 50% of the investor’s Arkansas income tax liability. Any unused credit may be carried forward for a period of nine years.
Digital Production/Film: Arkansas offers financial incentives to foster the development of the digital and traditional film industry in Arkansas. Act 496 of 2013 allows for a rebate of 20% of eligible expenditures for approved projects.