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003.19.9-II. Definitions

AR ADC 003.19.9-IIArkansas Administrative CodeEffective: May 2, 2022

West's Arkansas Administrative Code
Title 003. Department of Commerce
Division 19. Economic Development Commission
Rule 9. Consolidated Incentive Act of 2003 (Act 182 of 2003, as Amended) Rules
Effective: May 2, 2022
Ark. Admin. Code 003.19.9-II
Formerly cited as AR ADC 168.00.9-II
003.19.9-II. Definitions
Currentness
1. “Applied research” means any activity that applies the findings of basic research or other existing knowledge toward discovering new scientific knowledge that has specific commercial objectives with respect to new products, services, processes, or methods;
2. “Average hourly wage” means “Payroll” as defined in § 15-4-2703(26), 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” threshold determined at the signing of the agreement shall be the threshold for the term of the agreement;
3. “Basic research” means the pursuit of new scientific knowledge or understanding that does not have specific, immediate commercial objectives, although the pursuit may be in fields of present or potential commercial interest;
4. “Board” means the Board of Directors of the Division of Science and Technology of the Arkansas Economic Development Commission;
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 qualified business under this rule and is under the direct supervision of the qualified business receiving incentives under this rule, but is an employee of a business other than the one receiving incentives under this rule;
B. Otherwise meets the requirements of a new full-time permanent employee of the qualified business receiving incentives under this rule; and
C. Receives a benefits package comparable to direct employees of the qualified business receiving incentives under this rule;
7. “Corporate headquarters” means:
A. A facility or portion of a facility where the majority of an eligible business's financial, human resources, engineering, legal, strategic planning, information technology, corporate communications, marketing, or other headquarters-related functions are effectuated on either a regional basis or a national basis under the direction of principal executive officers, including without limitation chief executive officers, chief operating officers, chief financial officers, or other senior-level officers based at the facility.
B. A corporate headquarters shall be either a regional corporate headquarters or a national corporate headquarters;
C. The Executive Director of the Arkansas Economic Development Commission, with advice from the Secretary of the Department of Finance and Administration, may determine eligibility for a corporate headquarters facility if a difference exists between a business's disclosed corporate headquarters functions and its North American Industry Classification System primary business activity code;
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 approval date of the financial incentive agreement is the threshold for the term of the agreement;
9. “Distribution center” means a facility for the reception, storage, and shipping of:
A. A business's 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 revenue is 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 revenue of the product owner is from out-of-state customers; or
C. Products for sale to the general public if seventy-five percent (75%) of the sales revenue is from out-of-state customers;
10. “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 in effect on the effective date of the incentive agreement:
A.(i) Manufacturers classified in sectors 31-33 of the 2017 North American Industrial Classification System;
(ii) Manufacturers classified in sectors 20-39 according to the Standard Industry Classification standards but which are classified under NAICS in another sector;
B.(i) Businesses primarily engaged in the design and development of 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 fifty-one percent (51%) of their sales revenue from out of state;
(iii) The average hourly wage paid by businesses in this group to employees whose payroll is subject to incentives under this subchapter shall exceed one hundred twenty-five percent (125%) of the lesser of the state or county average hourly wage for the county in which the business locates or expands;
C.(i) Businesses primarily engaged in film and digital product productions and postproductions.
(ii) All businesses in this group shall derive at least fifty-one percent (51%) of their sales revenue from out of state;
(iii) The average hourly wage paid by businesses in this group to employees whose payroll is subject to incentives under this subchapter shall exceed one hundred twenty-five percent (125%) of the lesser of the state or county average hourly wage for the county in which the business locates or expands;
D. A distribution center or intermodal facility;
E. An office sector business;
F. A national or regional corporate headquarters, as classified in sector 551114 of the 2017 North American Industry Classification System, or as determined by the Executive Director of the Arkansas Economic Development Commission under subdivision (7)(C) of this section;
G. Businesses primarily engaged in research and development in the physical, engineering, and life sciences, as classified in the North American Industry Classification System codes 54173, 541714, and 541715, as in effect January 1, 2017;
H.(i) Scientific and technical services business.
(ii)(a) All businesses in this group shall derive at least fifty-one percent (51%) of their sales revenue from out of state; and
(b)(1) The average hourly wage paid by businesses in this group to employees whose payroll is subject to incentives under this Act shall exceed one hundred fifty percent (150%) of the lesser of the county or state average hourly wage for the county in which the business locates or expands;
I. The Executive Director may classify a non-retail business as an eligible business if the following conditions exist:
(i) The business must derive at least fifty-one percent (51%) of its sales revenue from out of state; and
(ii) The average hourly wage paid by the business to employees whose payroll is subject to incentives under this Act shall exceed one hundred twenty-five percent (125%) of the lesser of the state or county average hourly wage for the county in which the business locates or expands;
(J)(i) Businesses primarily engaged in other support activities for air transportation, as classified in the North American Industry Classification System Code 488190, as in effect on January 1, 2017.
(ii) All businesses in this group shall derive at least seventy-five percent (75%) of their sales revenue from out of state; and
(K)(i) Businesses primarily engaged in support activities for rail transportation, as classified in the North American Industry Classification System Code 488210, as in effect on January 1, 2017.
(ii) All businesses in this group shall derive at least seventy-five percent (75%) of their sales revenue from out of state;
11. “Endorsement resolution” means a resolution approved by the governing body of the municipality or county within whose jurisdiction the project facility is located which:
A. Approves the business's participation in the program; and
B. 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;
12. “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;
13. “Existing employees” means:
A. Those employees hired by a business before the date the financial incentive agreement was approved.
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 approved 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 Executive Director and the Secretary 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;
14. “Facility” means a single physical location, which may consist of multiple structures of an eligible business that are conducting similar or complementary activities located on noncontiguous property within the same county, at which the eligible business is conducting its operations.
15. “Film and digital product” means video images and other visual media entertainment content in digital format, film, or videotape, if the video images and other visual media entertainment content meet all the underlying criteria of a qualified production under the Digital Product and Motion Picture Industry Development Act of 2009, § 15-4-2001 et seq., including without limitation:
A. A motion picture;
B. A documentary;
C. A long-form program;
D. A special;
E. A mini-series;
F. A series;
G. A music video;
H. Television programming;
I. Interactive television;
J. An interactive game;
K. A video game;
L. A commercial;
M. Digital media for distribution or exhibition to the general public; and N. A trailer, pilot, video teaser, or demo created primarily to stimulate the sale, marketing, promotion, or exploitation of future investment
16. “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 or retain an existing business in Arkansas;
17. “Governing authority” means the quorum court of a county or the governing body of a municipality;
18. “In-house research” means:
A.(i) Applied research supported by the business through the payment of wages and usual fringe benefits specific to research activities of employees of the business or for wages and usual fringe benefits paid through contractual agreements, approved in writing by the Executive Director of the Arkansas Economic Development Commission, with an Arkansas state college, an Arkansas state university, or other Arkansas-based research organization to perform research for a targeted business:
(ii) “In-house research” includes experimental, clinical, 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.
B. “In-house research” does not include tests or inspection of materials or products for quality control, efficiency surveys, management studies, other market research, supplies, the purchase of land, the purchase or rehabilitation of production machinery and equipment, the construction or renovation of buildings, or any other ordinary and necessary expenses of conducting business;
19. “Intellectual property” means an invention, discovery, or new idea that the legal entity responsible for commercialization has legally protected for possible commercial gain, based on the disclosure of the creator;
20. “Intermodal facility” means a facility with more than one (1) mode of interconnected movement of freight or commerce;
21. “Invest” or “Investment” means money expended by or on behalf of a qualified business that seeks to begin or expand operations in Arkansas, and without the infusion of capital, the location or expansion may not occur;
22. “Investment threshold” means the minimum amount of investment in project cost that must be incurred to qualify for eligibility;
23. “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;
24. “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;
25. “NAICS” means North American Industry Classification System of 2017;
26. “National corporate headquarters” means the sole corporate headquarters in the nation that handles headquarters-related functions on a national basis;
27. “New full-time permanent employee” means:
A.(i) A position or job that was created pursuant to an approved financial incentive agreement and that is filled by one (1) or more employees or contractual employees who:
(a)(1) Were 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) For an employee of a qualified business with a regular, standardized work schedule, 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. For an employee of a qualified business with an irregular, non-standardized work schedule, (i) the position or job held by the employee or employees had been filled for at least one hundred thirty (130) days during any twenty-six (26) week period of a tax year and (ii) the employee or employees filling the position worked at least seven hundred eighty (780) hours within the tax year.
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;
28. “Non-retail business” means a business that is not classified in North American Industry Classification System sectors 44-45, as in effect on January 1, 2017;
29. “Office sector business” means:
A. Business operations that support primary business needs, including without limitation customer service, credit accounting, telemarketing, claims processing, and other administrative functions.
B. All businesses in this group shall be non-retail businesses and derive at least seventy-five percent (75%) of their sales revenue from out of state;
30. “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 approved financial incentive agreement;
31. “Person” means:
A. An individual, trust, estate, fiduciary, firm, joint venture, proprietorship, 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;
32. “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;
33. “Project costs” 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, machinery and equipment, or support infrastructure; or
(iii) Modernization of an established plant or facility through the replacement of machinery and equipment or support infrastructure that improves efficiency or productivity.
B. “Project costs” 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 or will close; and
(b) The purchase of the existing business will result in the retention of 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 approved by the Commission;
34. “Project plan” means a plan submitted to the Commission containing the information required by the Executive Director to determine eligibility for incentives;
35. “Qualified business” means an eligible business that:
A. Has met the qualifications for one (1) or more economic development incentives authorized by this rule; and
B.(i) Has signed a financial incentive agreement that has been approved by the Commission;
36. “Qualified research expenditures” means the sum of any amounts 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 promulgated by the Commission;
37. “Region” or “regional” means a geographic area comprised of this state and at least one (1) state contiguous to Arkansas;
38. “Regional corporate headquarters” means:
A. A facility or portion of the facility in which the majority of an eligible business's financial, human resources, engineering, legal, strategic planning, information technology, corporate communications, marketing, or other headquarters-related functions are effectuated on a regional basis under the direction of principal executive officers, including without limitation chief executive officers, chief operating officers, chief financial officers, or other senior-level officers based at the facility.
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;
39. “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
(iii) Scientific research and development in the physical, biological, and engineering sciences;
B. Deriving at least fifty-one percent (51%) of its sales revenue from out of state; and
C. Paying employees whose payroll is subject to incentives under this subchapter average hourly wages exceeding one hundred fifty percent (150%) of the lesser of the state or county average hourly wage for the county in which the business locates or expands;
40. “SIC” means the Standard Industrial Classification system;
41. “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 preconstruction costs;
42. “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 by the Executive Director of the Arkansas Economic Development Commission with the advice of the Board of Directors of the Division of Science and Technology of the Arkansas Economic Development Commission;
43. “Support infrastructure” means physical assets necessary for the business to operate, including, without limitation, water systems, wastewater systems, gas and electric utilities, roads, bridges, parking lots, and communications infrastructure;
44. “Targeted businesses” means:
A. A grouping of growing business sectors, not to exceed six (6) which 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; and
(vi) Bio-based products;
45. “Technological information” means information derived from basic or applied research that provides an improved practical understanding of the business component; and
46. “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 incentives under the rule.

Credits

Amended Aug. 21, 2009; Sept. 21, 2011; Aug. 25, 2012; May 6, 2016; Sept. 28, 2017; May 2, 2022.
Current with amendments received through February 15, 2024. Some sections may be more current, see credit for details.
Ark. Admin. Code 003.19.9-II, AR ADC 003.19.9-II
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