006.05.06 Ark. Code R. 005-GR-54

Current through Register Vol. 49, No. 9, September, 2024

Rule 006.05.06-005-GR-54 - SALES AND USE TAX INCENTIVES, CREDITS AND REFUNDS

A. ARKANSAS TOURISM DEVELOPMENT ACT ("TDA"). The Arkansas Tourism Development Act program provides financial incentives to induce the construction or expansion of tourism attractions. The Act is codified in Ark. Code Ann. § 15-11-501 et seq. The program authorizes State sales tax credits and State income tax credits. "Tourism attraction" is defined to include cultural or historical sites, recreational or entertainment facilities, areas of natural phenomena or scenic beauty, theme parks, amusement or entertainment parks, indoor or outdoor plays or music shows, botanical gardens and cultural or educational centers. Certain lodging facilities may also qualify as a tourism attraction project. A facility regulated under the Arkansas Horse Racing Law, or the Arkansas Greyhound Racing Law, shall be a tourism attraction for purposes of this Act for any approved project. The tourism development program is administered by the Arkansas Economic Development Commission ("AEDC"). Upon receiving notification from the Director of AEDC that an approved company has entered into a tourism project agreement and is entitled to the sales tax credits, the Director of the Department of Finance and Administration ("DFA") shall provide the approved company with such forms and instructions as are necessary to claim those credits.

1. The amount of sales tax credit will be based on a percentage of approved costs expended by an approved company. An approved company shall be entitled to a credit if the company certifies to the Director of DFA that it has expended at least $500,000.00 in a high-unemployment county and $1,000,00.00 in all other counties in approved costs and the Director of AEDC certifies that the approved company is in compliance with the Act.

a. The Director of DFA shall issue a sales tax credit memorandum to the approved company equal to fifteen percent (15%) of the approved costs. In high unemployment counties, the Director shall issue a credit memorandum to the approved company equal to twenty-five percent (25%) of the approved costs. Qualified amusement parks entering into a financial incentive agreement on or after January 1, 2006, for an approved project that will exceed $1,000,000.00 are eligible for a sales tax credit equal to twenty-five percent (25%) of the approved costs.

b. The sales tax credit memorandum shall not include an offset of the tourism tax levied under Ark. Code Ann. § 26-63-401 et seq.

c. Only increased sales tax liability as defined in the Act may be offset by the issued credit.

d. An approved company shall be entitled to use one hundred percent (100%) of the issued credit to offset increased state sales tax liability during the first year if its tax liability is equal to or greater than the amount issued in the state sales tax credit memorandum.

e. No sales tax credit memorandum shall be issued for any approved costs expended after two (2) years from the date the agreement the tourism project agreement was signed. However, in limited circumstances, the Director of DFA may authorize sales tax credits for approved costs expended up to four (4) years after the agreement was signed.

2. AEDC has promulgated rules for the implementation and administration of this Act, which rules should be obtained from AEDC. These rules may be obtained from AEDC's website: www.arkansaedc.com.

3. Accurate and up to date records of all expenditures shall be maintained by the approved business and available for inspection and audit by the Director. The eligibility of questionable items is determined by the Director.

B. Eligible businesses that signed a financial incentive agreement with AEDC prior to March 3, 2003, may be entitled to incentives provided under the following programs:

1. Economic Investment Tax Credit (EIC). The Economic Investment Tax Credit Act, Ark. Code Ann.§ 26-52-701 et seq., (formerly the Manufacturer's Investment Sales and Use Tax Credit Act of 1985) is commonly referred to as the InvestArk Program. The purpose of the EIC program is to encourage manufacturers and businesses to continue operations in Arkansas. The EIC program allows an eligible business to receive a credit against its monthly direct pay sales and use tax liability for purchases only. The credit against the qualified business' sales and use tax liability shall be seven percent (7%) of the eligible project costs. In any one (1) year, the amount of EIC credit used cannot exceed fifty-percent (50%) of the state sales and use tax liability of a program participant, however, a company with an eligible defense industry project may claim a credit for one hundred percent (100%) of the sales and use tax liability for a reporting period.

a. AEDC is responsible for determining the eligibility of certain approved projects to receive specified sales and use tax credits and refunds. AEDC has promulgated rules for the implementation and administration of this Act which should be obtained from AEDC.

b. In order to qualify for the tax credits provided by this Act, a manufacturer must:

(a) have been in continuous operation in Arkansas for at least two years prior to applying for tax credits;

(b) expend at least $5,000,000.00 on eligible items;

(c) hold a direct pay sales and use tax permit issued by the Sales and Use Tax Section of the Revenue Division.

c. Accurate and up to date records of all expenditures for the project approved by AEDC shall be maintained by the manufacturer and available for inspection and audit by the Director. The eligibility of questionable items is determined by the Director.

2. Enterprise Zone (EZ). The Arkansas Enterprise Zone Act of 1993, commonly referred to as the Advantage Arkansas Program, provides state income tax credits and state sales and use tax refunds to eligible businesses. The EZ program authorizes a refund of state sales and use tax, and local sales or use taxes if authorized by the pertinent city or county, on the purchases of materials used in the construction of a building or any addition or improvement thereon and machinery and equipment to be located in or in connection with the building. The entire State of Arkansas is an enterprise zone, therefore, there are no restrictions concerning where a participant must be located.

a. AEDC reviews applications to ensure eligibility. If a business is approved for participation in the EZ program, AEDC will issue a certificate of eligibility and forward the certificate to the DFA. DFA will provide forms and instructions needed for the approved business to receive the sales and use tax refunds.

b. AEDC has promulgated rules for the implementation and administration of this Act, which rules should be obtained from AEDC.

c. Accurate and up to date records of all expenditures shall be maintained by the approved business and available for inspection and audit by the Director. The eligibility of questionable items is determined by the Director.

3. Economic Development Act ("EDA"). The Arkansas Economic Development Act of 1995 provides benefits similar to the benefits offered in the Enterprise Zone Program. The EDA program provides State income tax credits and State sales and use tax refunds to eligible businesses. The EDA program authorizes a refund of State sales and use tax, and local sales or use taxes if authorized by the city or county, on the purchases of materials used in the construction of a building or any addition or improvement thereon and machinery and equipment to be located in or in connection with the building.

a. The EDA program requires that at least one hundred (100) new employees be hired within twenty-four (24) months of the date an agreement is entered into between the eligible business and AEDC. The qualifying business must spend at least $5,000,000.00 on the project covered by the agreement with AEDC.

b. The EDA program requires the eligible business to file an endorsement resolution with AEDC and DFA, and the business and its contractors must give preference and priority to Arkansas manufacturers, suppliers, contractors, and labor in certain circumstances.

c. AEDC has promulgated rules for the implementation and administration of this Act, which rules should be obtained from AEDC.

d. Accurate and up to date records of all expenditures shall be maintained by the approved business and available for inspection and audit by the Director. The eligibility of questionable items is determined by the Director.

C. Effective March 3, 2003, in accordance with Act 182 of 2003 ("Consolidated Incentive Act of 2003"), as amended by Act 1296 of 2005 and Act 1596 of 2007, eligible businesses that sign a financial incentive agreement with the AEDC may be entitled to state sales tax refunds or state sales tax credits. AEDC has promulgated rules for the implementation and administration of this Act, which rules should be obtained from AEDC.

1. Retention Sales and Use Tax Credit (InvestArk). - Act 182 of 2003, § 15-4-2706(c) This incentive program, commonly referred to as InvestArk, authorizes tax credits for qualified businesses. In order to qualify, a business must have been in continuous operation in the state for at least two(2) years, invest a minimum of $5,000,000.00 in a project (including land, buildings and equipment, and hold a direct-pay sales and use tax permit from the DFA. If allowed, the amount of the credit shall be one-half percent (0.5%) above the state sales and use tax rate in effect at the time a financial incentive agreement is signed. In any one (1) year following the year of the expenditures, credits taken cannot exceed fifty percent (50%) of the direct pay sales and use tax liability of the business for taxable purchases.

2. Sales and Use Tax Refunds for New and Expanding Businesses (Tax Back). An incentive program commonly referred to as Tax Back- Act 182 of 2003, Ark. Code Ann. § 15-4-2706(d), authorizes a refund of state and local sales and use taxes to eligible businesses that meet the qualifications for investment and payroll thresholds for the tier in which it locates or expands and are approved for benefits by AEDC. To qualify, the eligible business must invest in excess of $100,000.00 and meet the eligibility criteria of the Advantage Arkansas (§ 15-42705), Create Rebate (§ 15-4-2707) or ArkPlus (§ 15-4-2706(b) job creation incentive programs. 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. The refund is also allowed for the purchases of taxable machinery or equipment associated with the building or project. For projects approved on or after July 1, 2005, the refund of state sales and use taxes shall not include the refund of taxes dedicated to the Educational Adequacy Fund provided in § 19-5-1227 or the taxes dedicated to the Conservation Tax Fund provided in Ark. Code Ann. § 19-6-484.

3. Sales and Use Tax Refund for Targeted Businesses. Act 182 of 2003, Ark. Code Ann. § 15-4-2706(e)(1) 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 a discretionary incentive and is offered only at the discretion of the Director of AEDC. Targeted businesses are found within six growing business sectors that include: Advanced materials and manufacturing systems; Agricultural, food and environmental sciences; Biotechnology, bioengineering, and life sciences; Information technology; Transportation logistics; and Bio-based products. To qualify as a targeted business, the AEDC must determine that the business falls within one of the six categories noted above, the business must have been in operation for five (5) years or less and must pay, at minimum, one hundred fifty percent (150%) of the lesser of the state or county average hourly wage. In addition, the targeted business must have an annual payroll of at least $100,000.00 and demonstrate evidence of an equity investment in the targeted business of at least $400,000.00. A targeted business with an annual payroll in excess of $1,000,00.00 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 by Act 1296 of 2005 and Act 1596 of 2007. In addition, the business must invest in excess of $100,000.00 and meet the eligibility criteria of the Targeted Business payroll income tax credit incentive program (Ark. Code Ann. § 15-4-2709)

4. Technology-based Enterprises Investment. Income Tax or Sales and Use Tax Credit (Targeted ArkPlus). Act 1596 of 2007, Ark. Code Ann. § 15-4-2706(b)(7) -(13). At the discretion of the Director of AEDC, a technology-based enterprise, as defined by Ark. Code Ann. § 14-164-203(12), may earn an optional income tax credit or a sales and use tax credit based on new investment. The targeted business must invest a minimum of $250,000.00 within four (4) years of the effective date of the financial incentive agreement, create a new payroll of at least $250,000.00 and pay wages that are at least one hundred seventy-five percent (175%) of the state or county average hourly wage, whichever is less. The amount of credit earned shall be based upon a percentage of the investment and ranges from a minimum of two percent (2%) to a maximum of eight percent (8%) of the investment.

a. Prior to the execution of the 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 and ranges from a minimum of fifty percent (50%) to a maximum of one hundred percent (100%) of its tax liability.

b. The approved targeted business must certify eligible project expenditures annually with the DFA. Upon verification of eligibility, DFA shall issue the credit according to the tax type specified in the financial incentive agreement. The sales and use tax credit may be applied against the company'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 reported tax liability that may be offset by the credit may be derived from sales made by the approved company and collected from the customer, use taxes accrued by the company for out-of-state purchases and sales and use taxes accrued and reported on the company's monthly direct-pay report. The credit may not be applied against any taxes collected from the company by the seller. Any unused credit may be carried forward for a period not to exceed nine (9) calendar years after the calendar year in which it was first earned.

D. NONPROFIT INCENTIVE ACT OF 2005. The Nonprofit Incentive Act of 2005, Ark. Code Ann. § 15-4-3101 et seq., creates new financial incentives to encourage certain nonprofit organizations to locate in the State of Arkansas. The incentives consist of a payroll rebate and a sales and use tax refund. "Nonprofit organization" is defined as an entity that has been approved by the Arkansas Secretary of State as having met the qualifications for a nonprofit organization in Arkansas, and which has also received a 501(c)(3) designation from the Internal Revenue Service.

1. Eligibility. In order to be eligible for this program, a nonprofit organization must satisfy the following criteria:

a. The organization must have a payroll of new full-time permanent employees in excess of $1,000,00.00;

b. The organization must pay wages that average in excess of one hundred ten percent (110%) of the lesser of the county or state average hourly wage;

c. The organization must receive a minimum of seventy-five percent (75%) of its income from out-of-state sources;

d. Hospitals, medical clinics, educational institutions and churches are specifically excluded; and

e. The organization must qualify for payroll rebate benefits in order to receive a sales and use tax refund. The eligibility requirements for the payroll rebate are found in Ark. Code Ann. § 15-4-3106. The payroll rebate is based on the incentive agreement between the nonprofit organization and AEDC. The granting of the payroll rebate is at the discretion of the Director of AEDC. AEDC has promulgated rules for the implementation and administration of this Act, which rules should be obtained from AEDC.

f. A sales and use tax refund shall be made only if after audit of expenditures and payroll by the Revenue Division of DFA, the Revenue Division determines that the nonprofit organization is in compliance with all qualifications to receive the benefits of this program.

g. The organization must sign a financial incentive agreement with the AEDC prior to the start of any construction.

2. Sales and use tax refund. An application for a sales and use tax refund under the nonprofit organization incentive program shall be filed with the AEDC and shall include an endorsement resolution from the governing authority of a municipality or county where the nonprofit organization is or will be located. The resolution must endorse the applicant's application in the sales and use tax refund program and authorize the refund of any sales and use tax levied by the municipality or county. The Director of DFA shall authorize a sales and use tax refund of state and local sales and use taxes on the purchases by the nonprofit organization of the material used in the construction or renovations of a building housing any new or expanding nonprofit organization and machinery and equipment to be located in or in connection with the building. To qualify for this refund, a qualified nonprofit organization must spend in excess of $500,00.00 on buildings, machinery, and equipment in the new or improved facility. All claims for refunds must be filed with the Revenue Division of DFA within three (3) years from the date of the qualified purchase or purchases.

E. THE MOTION PICTURE INCENTIVE ACT. The Motion Picture Incentive Act of 1997, Ark. Code Ann. § 15-4-2001 et seq., expired June 30, 2007. Pursuant to the "sunset clause" contained in Ark. Code Ann. § 15-4-2011, the opportunity for a tax incentive provided Ark. Code Ann. § 15-4-2005 expired on June 30, 2007.

006.05.06 Ark. Code R. 005-GR-54

Ark. Code Ann. §§ 15-4-1701 et seq.; 15-4-1901 et seq.; 15-4-2001 et seq.; 15-4-2701 et seq.; 15-4-3101 et seq.; 15-11501 et seq.; 26-52-701 et seq.