The Advantage Arkansas program provides an Arkansas income tax credit based upon a percentage of the annual payroll paid to the new full-time permanent employees hired as a result of an approved project. The tier in which the project is located determines the qualifying payroll threshold as well as the income tax benefit calculation.

Pursuant to Act 716 of 2009, for agreements with an effective date on or after July 31, 2009, in all tiers, in order to qualify for the incentives under this program, the proposed average hourly wage of the eligible business applying for these incentives shall be at least equal to the greater of the lowest county average hourly wage calculated by the Commission based on the most recent calendar year data published by the Division of Workforce Services, or twelve dollars and fifty cents ($12.50).

The date of the approved financial incentive agreement is the beginning date in determining when the payroll threshold must be met. Only those employees hired after the date of the approved financial incentive agreement are eligible for the income tax credits (except as provided in Section II (15)).

The income tax credit earned cannot be used to offset up to fifty percent (50%) of a business's income tax liability annually. Any unused credits can be carried forward for up to nine (9) years beyond the year in which they were earned or until exhausted, whichever occurs first.

Income tax credits are earned in the tax year in which the new full-time permanent employees qualify after the financial incentive agreement was approved by the Commission. At the end of each tax year, during the term of the agreement, it is the responsibility of the qualified business to file the Advantage Arkansas Program Employee Payroll Certification Audit Request with the DFA. This certification provides the number of new permanent employees and their payroll during the preceding tax year and is the mechanism to initiate the verification audit. Upon verification of the reported payroll amounts, the DFA shall authorize the appropriate income tax credit. Therefore, the business must certify annually at the end of each tax year to the DFA.

The qualified business shall be entitled to receive income tax credits for which it has remained eligible under the rule and for which has provided timely certification in support thereof, for each subsequent tax year during the term of the agreement. The term of the financial incentive agreement shall be for a period of five (5) years, beginning on the date of the approved financial incentive agreement.

The income tax credit for the tax year in which new employees qualify will be based on the payroll paid to each new full-time permanent employee from their hire date to the end of the tax year. The payroll threshold of the new full-time permanent employees must be met by the business within two (2) years following the date the financial incentive agreement was approved (except as provided in Section V (1)).

The threshold for qualifying for the Advantage Arkansas job creation income tax credit and the benefit received is dependent upon the tier in which the project is located on the date the financial incentive agreement was approved:

Example: An eligible business intends to expand its operation in a Tier 3 county and will be adding twenty-five (25) new full-time permanent employees earning fifteen dollars ($15) per hour. In a Tier 3 county, a payroll threshold of seventy-five thousand dollars ($75,000) must be met to qualify for the job creation tax credit equal to three percent (3%) of payroll. ($15 per hour x 2080 hours = $31,200 per employee x 25 jobs = $780,000 annual payroll x 3% = $23,400 income tax credit earned for each of the next five (5) years.) This example assumes that all twenty-five (25) new full-time permanent employees were hired at the beginning of the first year and worked forty (40) hours per week.

Notes: Benefit calculations for the above example could change given the following circumstances:

Combination with other incentives: The job creation income tax credit (Advantage Arkansas) authorized in § 15-4-2705 may be combined with:

Advantage Arkansas shall not be combined with the payroll rebate incentive (Create Rebate) authorized by § 15-4-2707.

The payroll rebate incentive, also known as “Create Rebate”, is offered only at the discretion of the Executive Director. Like the Advantage Arkansas job creation income tax credit, the payroll rebate is based on the payroll of new full-time permanent employees.

The date of the approved financial incentive agreement is the beginning date in determining when the payroll threshold must be met. Only the payroll of those employees hired after the date of the financial incentive agreement is eligible for the rebate (except as provided in Section II (15). To qualify for this incentive, a business shall meet minimum annual payroll thresholds for new full-time permanent employees for the county tier in which the project is located.

The payroll rebate for the tax year in which new employees qualify will be based on the payroll paid to each new full-time permanent employee from their hire date to the end of the tax year. To be counted as a new full-time permanent employee during any tax year, the employee must have worked a minimum of twenty-six (26) consecutive weeks with an average of at least thirty (30) hours per week. The payroll threshold of the new full-time permanent employees must be met by the business within twenty-four (24) months following the date the financial incentive agreement was signed (except as provided in Section V (1)).

The incentive payment amount shall be subject to the terms provided in the financial incentive agreement and may be reduced based upon the audited performance of the eligible business.

It is the responsibility of the qualified business to file the Create Rebate Program New Full-Time Permanent Employee Payroll Certification with the DFA when the requisite payroll threshold has been attained. This certification provides the number of new full-time permanent employees hired, together with the dollar amount of their payroll. Thereafter, the qualified business shall recertify the number of new full-time permanent employees and payroll amounts annually at the end of each tax year. The certification to the DFA is the mechanism to initiate the verification audit. Therefore, the business must certify annually at the end of each tax year to the DFA.

Pursuant to Act 625 of 2009, for financial incentive agreements with an effective date on or after July 31, 2009, failure of the business to certify and recertify payroll amounts annually to the DFA will result in the DFA reducing the amount of rebate earned by ten percent (10%) if not claimed within one (1) year from the end of the tax year in which the rebate was earned, or a one hundred percent (100%) forfeiture of the earned rebate if not claimed within two (2) years from the end of the tax year in which the rebate was earned. If a qualified business has failed to submit an initial certification with DFA within four (4) years after the date of the approved financial incentive agreement the agreement will be terminated, unless the date has been extended by the Executive Director. The offering of this incentive is intended to provide benefits to businesses locating or expanding in Arkansas. In the event the approved business ceases the operations of the facility for which the incentives are offered, the incentive agreement will be terminated and any benefits accrued and not claimed as of the date of closure will be forfeited.

The payroll rebate (Create Rebate) benefit can only be authorized at the discretion of the Executive Director in the form of a written proposal and may be offered for up to ten (10) years. The term of the agreement depends on the benefit to the state as determined by a cost-benefit analysis performed by the Commission. If the proposal is accepted by the qualified business, a financial incentive agreement is signed by the Commission and the business. The provisions of the financial incentive agreement will be based upon the eligible business's proposed job creation and average hourly wage information provided in the written proposal from the Executive Director. With the exception of targeted businesses, the incentive allowed is dependent upon the tier in which the business locates. The qualifying annual payroll thresholds and incentive payment allowed are as follows:

To qualify for this incentive, except for the enhanced incentive, the average hourly wage paid to employees whose payroll is subject to incentives shall be at least equal to the greater of the lowest county average hourly wage as calculated by the commission based on the most recent calendar year data published by the Department of Workforce Services, or twelve dollars and fifty cents ($12.50).

A qualified business shall receive an additional incentive of one percent (1%) of the payroll of new full-time permanent employees if the average hourly wage paid to employees subject to incentives exceeds the lesser of one hundred twenty-five percent (125%) of the county or state hourly wage for the county in which the business locates or expands.

The benefits provided by this section shall be calculated based upon the provisions of the financial incentive agreement. The financial incentive agreement may contain language that will adjust the benefit based upon the audited performance of the eligible business.

Example: An eligible business plans on locating in a Tier 2 county and plans to hire sixty-five (65) employees at an average wage of nineteen dollars ($19) per hour. In Tier 2, a payroll rebate of four and one-quarter percent (4.25%) of payroll of new full-time permanent employees may be granted. A minimum annual payroll of one million seven hundred fifty thousand dollars ($1,750,000) is required to qualify for this incentive. In this example, the Executive Director agrees to award the payroll rebate for a period of three (3) years. ($19 per hour x 2080 =$39,520 per employee x 65 jobs = $2,568,800 annual payroll x 4.25% = $109,174 payroll rebate for each of the next three (3) years.) This example assumes that all sixty-five (65) new full-time permanent employees were hired at the beginning of the first year and worked forty (40) hours per week.

Notes: Benefit calculations could change given any of the following circumstances:

Combination with other incentives: The payroll rebate (Create Rebate) incentive authorized in § 15-4-2707, if offered by the Executive Director, may be combined with:

The payroll rebate incentive payment for targeted businesses is equal to five percent (5%) of the payroll of the new full-time permanent employees for a period not to exceed ten (10) years provided that the following conditions are met:

The payroll rebate for targeted businesses may not be used in conjunction with the income tax credit based on payroll authorized by § 15-4-2709.

• Retention Sales and Use Tax Credit (InvestArk) -- Act 182 of 2003, as amended, § 15-4-2706(c).

A qualified business may apply for the Retention Sales and Use Tax Credit (InvestArk) through June 30, 2017. InvestArk applications shall not be accepted on or after July 1, 2017. However, any projects that qualify for InvestArk based on applications filed through June 30, 2017, shall continue to earn credits. InvestArk tax credits issued on a project that qualified for InvestArk tax credits based on an application filed through June 30, 2017, shall remain in effect and shall be taken and carried forward as otherwise provided under § 15-4-2706(c).

The qualifications and benefits for this incentive are the same in all four (4) tiers. To qualify, a business must: 1) Have been in continuous operation in the state for at least two (2) years; 2) Invest a minimum of five million dollars ($5,000,000) in a project (including land, buildings and equipment); and 3) Hold a direct-pay sales and use tax permit from the DFA.

To obtain incentives under the InvestArk program, a business must apply to the Commission, using forms provided by the Commission, and be approved based on the qualifications submitted in the application and the accompanying project plan. With the exception of preconstruction costs, only those costs incurred after the Commission's approval are eligible in calculating the benefit of this program.

The project plan shall clearly identify the scope of the project, the time frame in which the project is to be started and completed and a complete listing of estimated project expenditures. All project costs must be incurred within four (4) years from the date the project is approved by the Commission. However, a qualified business that enters into a lease for building or equipment for a period of at least five (5) years may count the lease payments for the first five (5) years of the lease agreement as qualifying expenditures. The first five (5) years of qualified lease payments should be claimed in the expenditure year in which the lease is signed.

A company that filed an InvestArk application with AEDC between June 22-28, 2017 may be approved by the executive director of AEDC to have six (6) years to incur project costs if a positive return on taxpayer investment is met. A company must have had an InvestArk application approved on or after June 22, 2017 and the executive director determines that the portion of the qualified project to be completed in the forty-nine (49) to seventy-two (72) month extension period will have a positive return on taxpayer's investment equal to or greater than the amount of retention tax credits issued. If the executive director approves an extension, the tax credits earned may be taken beginning on and after July 1, 2023. The maximum amount of tax credits that may be used by a qualified applicant in any fiscal year for this extension period is seven hundred fifty thousand dollars ($750,000).

To determine a positive return on taxpayer's investment a company must submit documentation to AEDC stating:

The project plan may be revised by written amendment filed with the Commission. The Commission's approval of an amendment will not extend the time period in which project costs may be incurred. Amendments that exceed twenty-five percent (25%) of the original project plan's estimated cost will not be considered and shall be submitted as a new project.

The benefit of the InvestArk program is a sales and use tax credit based on a percentage of qualified expenditures. The percentage used to determine the amount of sales and use tax credits earned is five-tenths percent (0.5%) above the state sales and use tax rate in effect at the time the financial incentive agreement is signed with the Commission.

The credit may be applied against the business's direct-pay state 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 (5) years. In any year, tax credits taken under this program cannot exceed fifty percent (50%) of the business's sales and use tax liability on taxable purchases.

Once a business has qualified for the InvestArk incentive, the Executive Director will notify the DFA that the project has been approved and will transmit the documents upon which the qualification was based.

The Commission's approval of any application is for content only. It does not constitute approval of all items listed on the application or the project plan. These items will be reviewed and either approved or ruled ineligible by an audit by the Revenue Division of the DFA.

The DFA is authorized to conduct an audit to determine eligibility of reported project expenditures. The audit may be conducted after credits have been issued and used. If expenditures upon which credits have been issued are determined to be ineligible, the amount of credit will be adjusted, which may result in the repayment of all taxes.

It is the responsibility of the qualified business to file an Annual Project Expenditure Report (Form InvestArk 2000) annually at the end of each calendar year with the DFA to report the eligible project expenditures incurred during the preceding calendar year. Upon determining the amount of credit earned during that calendar year, the DFA shall issue a memorandum of credit to the qualified business. The issuance of the credit does not imply the eligibility of the expenditures, which are subject to audit at a later date.

Example: A manufacturer is adding a new product line and will require additional space and new processing equipment. The total cost of the project, with land, building and equipment, totals seven million seven hundred and fifty-four thousand dollars ($7,754,000). The business has been in operation for over fifteen (15) years in Arkansas, meeting the two-year residency requirement of this incentive. After being approved by and signing a financial incentive agreement with the Commission, the manufacturer is eligible for a sales and use tax credit of seven percent (7%) (one-half of one percent over the rate of 6.5% as of July 1, 2013). At the end of each calendar year, until project completion, the business shall certify to the DFA the amount of project expenditures incurred during the previous calendar year and shall be granted a sales and use tax credit. If the business had spent seven million seven hundred and fifty-four thousand dollars ($7,754,000) in eligible expenditures in the previous calendar year, the total sales and use tax credit based upon a sales tax rate of 6.5% ($7,754,000 x 7%) would be $542,780, which could be used the following year and any unused credit could be carried forward for an additional five (5) years. In any year, the amount of the sales and use tax credit used cannot exceed fifty percent (50%) of the business's sales and use tax liability on taxable purchases.

Notes: The benefit calculations above could change given any of the following circumstances:

Combination with other incentives: The retention tax credit (InvestArk) authorized in § 15-4-2706(c) may be combined with:

This incentive shall not be combined with the sales and use tax refund authorized in § 15-4-2706(d) for the same project.

This incentive is awarded only at the discretion of the Executive Director. To qualify, the business must meet both the investment and payroll thresholds for the tier in which it locates.

The benefit is an income tax credit equal to ten percent (10%) of total audited eligible project costs. The benefit is the same regardless of the tier in which the business locates.

The business must reach the investment threshold for the tier in which it is located within four (4) years from the date of the approved financial incentive agreement. All project costs must be incurred within four (4) years from the date the project is approved by the Commission; however, a qualified business that enters into a lease for building or equipment for a period of at least five (5) years may count the lease payments for the first five (5) years of the lease agreement as qualifying expenditures. The first five (5) years of qualified lease payments should be claimed in the expenditure year in which the lease is signed.

The business must reach the payroll threshold for the tier in which it is located within two (2) years from the date of the approval of the financial incentive agreement.

It is the responsibility of the qualified business to file an ArkPlus Program Annual Incentive Plan Expenditure Report and an ArkPlus Program New Full-Time Permanent Employee Payroll Certification with the DFA when the investment threshold is met. This certification provides the amount of eligible project costs incurred in the previous tax year and the number of new full-time permanent employees hired, together with the dollar amount of their payroll. Thereafter, the business shall recertify eligible project costs and the number of new full-time permanent employees and payroll amounts annually at the end of each tax year. The certification to the DFA is the mechanism to initiate the verification audit.

The income tax credit earned can be used to offset up to fifty percent (50%) of the business's income tax liability annually. Any unused credits can be carried forward for up to nine (9) years beyond the year in which they were earned or until exhausted, whichever occurs first.

To qualify for this incentive, the business must meet the investment and payroll thresholds for the tier in which the business locates or expands:

Example: A new eligible business plans to begin operations in a Tier 4 county. It plans on hiring fifty (50) new full-time permanent employees at an average wage of fifteen dollars ($15) per hour. ($15/hour x 2080 hours = $31,200 average annual salary x 50 employees = $1,560,000 annual payroll.) It will invest three million five hundred thousand dollars ($3,500,000) in land, buildings and equipment for the new operation. The one million five hundred and sixty thousand dollar ($1,560,000) annual payroll exceeds the eight hundred thousand dollar ($800,000) payroll threshold for a Tier 4 county and the capital investment of three and one-half million dollars ($3,500,000) exceeds the two million dollar ($2,000,000) investment threshold, allowing the business to meet minimum qualifications for the incentive. Should the Executive Director approve the business's application for this incentive program, and should the business spend precisely three and one-half million dollars ($3,500,000), it would earn an income tax credit of three hundred and fifty thousand dollars ($350,000) that could be carried forward for up to nine (9) years beyond the year it was first earned. This example assumes all new full-time permanent employees were hired at the beginning of the first year and work forty (40) hours per week.

Notes: The benefit calculation noted above could change given any of the following circumstances:

Failure to meet investment or payroll requirements could necessitate the implementation of recapture provisions provided for in Section V of these rules.

Combination with other incentives: The investment income tax credit authorized by § 15-4-2706(b), if approved by the Executive Director, may be combined with:

C. Technology-Based Enterprises Investment Income Tax and Sales and Use Tax Credit (Targeted ArkPlus) -- Act 182 of 2003, as amended, § 15-4-2706(b)(7).

At the discretion of the Executive Director, a targeted business may earn an income tax credit or a sales and use tax credit based upon new investment. The targeted business must:

The credit earned by the targeted business is based upon a percentage of the investment as follows:

Prior to commission approval of a financial incentive agreement, the targeted business must elect to receive the tax credits as sales and use tax credits or income tax credits.

The percentage of the targeted business's tax liability that may be offset is determined by the average hourly wage paid to the new full-time permanent employees as follows:

The approved targeted business must certify eligible project expenditures and average hourly wages annually with the DFA. Upon verification of eligibility, the DFA shall issue the credit according to the tax type specified in the financial incentive agreement.

The income tax credit may be applied against the approved business's Arkansas income tax liability. Any unused credit may be carried forward for up to nine (9) tax years after the tax year in which it was first earned or until the tax credits are exhausted, whichever occurs first.

The sales and use tax credit may be applied against the business's state sales and use tax liability as reported on its monthly sales and use tax report in the calendar year following the calendar year of expenditure.

The tax liability reported on the business's monthly sales and use tax that may be offset by the credit may be derived from:

The credit may not be applied against any taxes collected from the business by the seller. Any unused credit may be carried forward for a period up to nine (9) calendar years after the calendar year in which it was first earned.

This incentive program is available to any eligible business that meets the qualifications for investment and payroll thresholds for the tier in which it locates or expands and is approved for benefits by the Commission. The Commission's approval is contingent upon receipt of a completed application and a local endorsement resolution from the city, county, or both which authorizes the refund of its local taxes to the eligible business.

To qualify for a refund under this program, the qualified business must meet the eligibility criteria of the Advantage Arkansas (§ 15-4-2705) or Create Rebate (§ 15-4-2707) job creation incentive programs and meet the minimum investment thresholds for the tier in which the qualified business expands or locates, as follows:

The financial incentive agreement for the job creation tax credit (Advantage Arkansas) or payroll rebate (Create Rebate) must be approved within two (2) years of signing the approval of a financial incentive agreement for a sales and use tax refund unless the eligible business has met the requirements of a job creation financial incentive agreement under § 15-4-2705 or § 15-4-2707 within the previous four (4) years.

In the event an eligible business has an existing Tax Back agreement, the business may apply for additional Tax Back if it has signed a job creation financial incentive agreement under § 15-4-2705 or § 15-4-2707 within the previous four (4) years.

In the event the business does not have an existing Tax Back agreement, the business may apply for Tax Back benefits if it has signed a job creation financial incentive agreement under § 15-4-2705 or § 15-4-2707 within the previous four (4) years.

An application, accompanied by local endorsement resolution(s), must be filed with the Commission. The application should clearly identify the intent of the project, the expenditures planned, the start and end date of the project and an estimate of total project costs. The local endorsement resolution(s) from the governing authority (city council, quorum court, or both) in which the project is located must authorize the refund of its local sales and use taxes.

The purpose of the resolution is to: A) approve the business's participation in the program; and B) specify that the municipality or county authorizes the DFA to refund all or part of any sales and use tax levied at the local level. The municipality or county in which the eligible business is located may authorize the refund of any sales or use tax levied by it but may not authorize the refund of any sales and use tax not levied by it.

This incentive program grants a refund of state and local sales and use taxes paid 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. A sales and use tax refund is also allowed for the purchases of taxable machinery or equipment associated with the building or project.

A refund shall not be authorized for:

All project costs must be incurred within four (4) years from the date the project is approved by the Commission. The project plan may be revised by written amendment filed with and approved by the Commission. The Commission's approval of an amendment will not extend the time period in which project costs may be incurred. Amendments that exceed twenty-five percent (25%) of the original project plan's estimated cost will not be approved by the Commission and shall be submitted as a new project.

E. Sales and Use Tax Refund for Targeted Businesses -- Act 182 of 2003, as amended, § 15-4-2706(e).

This incentive program extends the benefits of the Tax Back sales and use tax refund program to a category of new and expanding eligible businesses referred to as “targeted businesses”. This incentive is offered only at the discretion of the Executive Director. Targeted businesses are found within six (6) growing business sectors that include:

To qualify as a targeted business, the Commission must determine that the targeted business must have an annual payroll of at least one hundred thousand dollars ($100,000) and demonstrate evidence of an equity investment in the targeted business of at least two hundred fifty thousand dollars ($250,000). A targeted business with an annual payroll in excess of one million dollars ($1,000,000) will not qualify for the targeted business sales and use tax refund, but may be eligible for other incentives offered through the Consolidated Incentive Act of 2003 (Act 182 of 2003), as amended. The preceding payroll requirements apply only to the initial eligibility determination and do not preclude a targeted business from receiving incentives if, at any time after the financial incentive agreement is approved, the actual payroll of the targeted business does not satisfy the payroll requirements.

In addition to meeting the targeted business eligibility requirements, the business must meet the eligibility criteria of the Targeted Business payroll income tax credit incentive program (§ 15-4-2709). A signed financial incentive agreement for targeted payroll income tax credits must be signed within two (2) years of signing a financial incentive agreement for a sales and use tax refund.

To be eligible for the incentives under this program, the targeted business shall meet all payroll creation requirements of an approved financial incentive agreement under § 15-4-2707 or § 15-4-2709 within two (2) years of the date of the approved financial incentive agreement under this subsection or other subsequent date if approved by the Executive Director of the Arkansas Economic Development Commission.

An application accompanied by a local endorsement resolution must be filed with the Commission. The application should clearly identify the intent of the project, the expenditures planned, the start and end date of the project and an estimate of the total project costs. The local endorsement resolution from the governing authority (city council, quorum court, or both) in which the project is located must authorize the refund of its local sales and use taxes.

The purpose of the resolution is to: A) approve the specific entity's participation in the program; and B) specify that the municipality or county authorizes the DFA to refund all or part of any sales and use tax levied at the local level. The municipality or county in which the eligible business is located may authorize the refund of any sales or use tax levied by it but may not authorize the refund of any sales and use taxes not levied by it.

This incentive program grants a refund of state and local sales and use taxes paid 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. A sales and use tax refund is also allowed for the purchases of taxable machinery or equipment associated with the building or project.

A refund shall not be authorized for:

All project costs must be incurred within four (4) years from the date the project is approved by the Commission. The project plan may be revised by written amendment filed with and approved by the Commission. The Commission's approval of an amendment will not extend the time period in which project costs may be incurred. Amendments that exceed twenty-five percent (25%) of the original project plan's estimated cost will not be approved by the Commission and shall be submitted as a new project.

It is the responsibility of the qualified targeted business to file a Targeted Business Tax Back Program Annual Sales and Use Tax Refund Request (Form TB 1000) annually at the end of each calendar year to the DFA to request a refund of sales and use taxes paid on eligible project expenditures incurred during the preceding calendar year. Upon determining the amount of the eligible refund, the DFA shall issue a refund to the qualified business.

All claims for sales and use tax refunds under this incentive program must be filed within three (3) years from the date of the qualified purchase or purchases or those claims will be denied.

Example: A new start-up computer software design firm is beginning business. It has received an equity investment from a venture capital firm in the amount of seven hundred fifty thousand dollars ($750,000), which exceeds the two hundred and fifty thousand dollar ($250,000) threshold, to help it get started. It plans on hiring six (6) new full-time permanent employees at an average hourly wage of twenty-eight dollars ($28) per hour. ($28/hour x 2080 hours = $58,290 average annual salary x six (6) employees = $349,440 annual payroll.) The business's annual payroll exceeds the threshold of one hundred thousand dollars ($100,000) so the business meets the payroll, and investment requirements necessary to qualify for the sales and use tax refund. Eligibility is also dependent upon being approved by the Executive Director. The eligible targeted business must file for the sales and use tax refund within three (3) years of purchase or the claim will be denied. This example assumes all new full-time permanent employees are hired at the beginning of the first year and work forty (40) hours per week.

Notes: The refund of sales and use tax for eligible targeted businesses is dependent upon the following conditions:

Combination with other incentives: The sales and use tax refund for targeted businesses authorized by § 15-4-2706(e) may be combined with, if approved by the Executive Director:

The payroll income tax credit for targeted businesses assists 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. This incentive is offered only at the discretion of the Executive Director. To qualify for this incentive, the business must be included in one of six (6) targeted business sectors that include:

The business must also have an annual payroll of not less than one hundred thousand dollars ($100,000) or more than one million dollars ($1,000,000). This requirement only applies to the initial eligibility determination and does not preclude qualified businesses from receiving incentive if, at any time after the financial incentive agreement has been approved, actual payroll does not satisfy the requirements. A business must show proof of an equity investment of at least two hundred fifty thousand dollars ($250,000) and pay average hourly wages in excess of one hundred fifty percent (150%) of the county or state average hourly wage, whichever is less.

The benefit for a targeted business is an income tax credit equal to ten percent (10%) of its annual payroll, with a cap of one hundred thousand dollars ($100,000) per year in earned income tax credits for a business that qualifies and is approved for this incentive. Any unused credits can be carried forward for up to nine (9) years beyond the year in which they were earned or until exhausted, whichever occurs first.

The incentive may be offered for a period not to exceed five (5) years. The five-year period begins on January 1^st of the following year in which the financial incentive agreement is approved and may not extend beyond five (5) years from that date. Unlike the other incentives, the calculation of this income tax credit may include existing employees in the calculation of payroll to qualify for this benefit. To claim these benefits, the targeted business must sign a financial incentive agreement with the Commission.

Income tax credits are earned in the tax year in which the new full-time permanent employees qualify after the financial incentive agreement was signed with the Commission. At the end of each tax year, during the term of the agreement, it is the responsibility of the qualified targeted business to file the Targeted Business Payroll Tax Credit Employee Annual Payroll Certification with the DFA. This certification provides the number of new permanent employees and their payroll during the preceding tax year and is the mechanism to initiate the verification audit. Therefore, the business must certify annually at the end of each tax year to the DFA.

A unique feature of this incentive is the ability of the business that earns the targeted business income tax credit to sell the credits upon approval of the Executive Director. The business must make application to the Commission for the sale of credits. The original holder of tax credits under this section may sell its tax credits only one (1) time, in whole or in part, the balance of which shall be used by the holder within the time frame allowed. The Commission may assist the business in finding a buyer for the tax credits. Any sale of tax credits through this incentive will be fully documented by the Commission and that information will be transmitted to the DFA Revenue Division.

The buyer of the tax credit shall be subject to the same provisions for carry forward of the tax credits as the business that originally earned the credits. Since one of the allowable costs under the research and development tax credits is the salary of a person performing research, a business earning payroll income tax credits for targeted businesses is prohibited from earning research and development tax credits, as authorized by § 15-4-2708 or by § 26-51-1102(b), for the same expenditure.

Example: A new biotechnology firm, which is a client of the BioVentures Incubator, is leaving the incubator to expand its business. It has received a Small Business Innovation Research (SBIR) grant of seven hundred thousand dollars ($700,000) to continue its efforts with assistance from the National Institutes of Health. Currently, the business has one (1) employee, a former UAMS research scientist who holds the patent on the biomedical device that is to be the business's first product. The business plans on hiring four (4) new full-time permanent employees for a total of five (5) full-time permanent employees. The average hourly wage of the five (5) employees will be forty-five dollars ($45) per hour. ($45/hour x 2080 = $93,600 average annual salary x 5 employees = $468,000 annual payroll.) The SBIR grant allows the new business to meet the two hundred fifty thousand dollar ($250,000) equity investment threshold and the annual payroll is well above the one hundred thousand dollar ($100,000) minimum to qualify. The forty-five dollar ($45) per hour wage is more than the one hundred fifty percent (150%) wage requirement for the tier of the county in which the targeted business locates. The new targeted business would earn a tax credit of forty-six thousand eight hundred dollars ($46,800) which may be sold to a willing buyer. If this business was granted the payroll income tax credit for the maximum time allowable (5 years), the credit in subsequent years would be equal to 10% of the annual payroll in years two (2) through five (5). This example assumes all new full-time permanent employees are hired at the beginning of the first year and work forty (40) hours per week.

Notes: The calculation of the benefit for an income tax credit for new targeted businesses is dependent upon the following conditions:

Combination with other incentives: The payroll income tax credit for targeted businesses authorized by § 15-4-2709 may be combined with, if approved by the Executive Director:

A. In-House Research -- Act 182 of 2003, as amended, § 15-4-2708

The term of the financial incentive agreement for in-house research and development shall be for a period not to exceed five (5) years beginning on the first day of the business's tax year in which the financial incentive agreement is signed. The financial incentive agreement may be renewed for additional five (5) year periods upon the submittal and approval of a new application and project plan by the Executive Director.

The approved business shall certify annually at the end of each tax year, to the Commission, the amount expended on in-house research.

The income tax credit earned for in-house research and development may be used to offset up to one hundred percent (100%) of the qualified business's state income tax liability. Any unused tax credits may be carried forward for a period up to nine (9) years after the year in which the credit was first earned or until the tax credits are exhausted, whichever occurs first.

To claim the credit earned through this incentive, the business shall file with its return, the Certificate of Tax Credit issued by the Commission. The Commission will adhere to some of the federal guidelines for qualifying research for federal tax credits as a guide in determining eligibility for this state income tax credit.

Qualified research expenditures include in-house expenses for taxable wages paid, 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, with a state college, an Arkansas state university, or other Arkansas-based research organization to perform research for a targeted business.

Qualified research must satisfy all of the following tests to qualify:

The following activities are specifically excluded from the definition of qualified research:

Qualified wages are taxable wages paid to an employee for performing qualified services. Qualified services are services of employees who are:

Direct support of research activities does not include general administrative services or other services only indirectly of benefit to the research activity.

Combination with other incentives: The in-house research income tax credit may not be combined with:

C. In-House Research by a Targeted Business -- Act 182 of 2003, as amended, § 15-4-2708(b)

Businesses deemed by the Commission to fit within the six (6) business sectors classified as “targeted businesses” may enter into a financial incentive agreement for income tax credits based on qualified in-house research and development expenditures.

A targeted business may be approved for an income tax credit each year equal to thirty-three percent (33%) of the qualified research and development expenditures incurred each year for the first (5) years of the financial incentive agreement. This incentive is offered only at the discretion of the Executive Director. The application for this income tax credit shall 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.

The Commission will adhere to some of the federal guidelines for qualifying research for federal tax credits as a guide in determining the eligibility for this state income tax credit.

Qualified research expenditures include in-house expenses for taxable wages paid, and usual fringe benefits specific to research activities of employees of the business.

Qualified research must satisfy all of the following tests to qualify:

The following activities are specifically excluded from the definition of qualified research:

Qualified wages are taxable wages paid to a full-time permanent employee or “contractual employee”, as defined in the Act, for performing qualified services. Qualified services are services of employees who are:

Direct support of research activities does not include general administrative services or other services only indirectly of benefit to the research activity.

As with the payroll income tax credits for targeted businesses, the income tax credit for research and development earned by targeted businesses may be sold.

The income tax credits earned under this program may be sold upon approval by the Commission. Any sale of tax credits through this program must be fully documented by the Commission and that information will be transmitted to the DFA.

The purchaser of the tax credits provided by this program shall obtain certification from the Commission and attach the appropriate documentation provided by the Commission to the tax return on which the credit is first claimed.

The tax credit must be sold within one (1) year of its being issued by the Commission. The original holder of tax credits under this section may sell its tax credits only one (1) time, in whole or in part, the balance of which shall be used by the holder within the time frame allowed.

To claim a credit earned through this incentive, the business shall file with its income tax return the Certificate of Tax Credit issued by the Commission.

The buyer of the tax credit shall be subject to the same provisions for carry forward of the tax credits as the business that originally earned the credits. A targeted business earning research and development tax credits is prohibited from earning job creation tax credits, as authorized by § 15-4-2709 for the same expenditure.

Example: A new photonics business that has recently left the Genesis Technology Business Incubator and has applied for and been approved for in-house research income tax credits as a targeted business, is in need of further research to refine a process for using lasers in space applications. It plans to spend two hundred thousand dollars ($200,000) on qualified expenditures for an in-house research and development project that has been approved by the Commission as a qualified research program. The two hundred thousand dollar ($200,000) expenditure would be eligible for a thirty-three percent (33%) tax credit, entitling the photonics business to earn sixty-six thousand dollars ($66,000) in income tax credits in the year of the expenditure. The credits may be carried forward up to nine (9) years. At the discretion of the photonics business and with the approval of the Commission, the credits may be sold within one (1) year of issuance by the Commission to allow the photonics business to realize the benefit of the credit.

The purchaser of the credits would be able to carry the credit forward for nine (9) years.

Combination with other incentives: The income tax credit for research by a targeted business authorized by § 15-4-2708(b) may not be used with:

An income tax credit equal to thirty-three percent (33%) of qualified research expenditures may be offered, at the discretion of the Executive Director, to an Arkansas taxpayer that invests in: