168.00.07 Ark. Code R. 002

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

Rule 168.00.07-002 - Tourism Development Incentive Act Rules

I.Introduction

To encourage growth in Arkansas's tourism industry, Act 291 was passed by the 81st General Assembly in 1997 and amended in 1999, 2001, 2005 and 2007. The legislation's purpose is to stimulate expansion of Arkansas's tourism industry by offering economic incentives to qualified private development projects in the form of sales and income tax credits. Since the intent is to generate additional tourist traffic to Arkansas, each proposed project must develop a marketing plan that targets 25% of its visitors from out-of-state, meet other requirements and submit a completed application prior to incurring any project costs. See Arkansas Code Annotated § 15-11-501 et seq.

For more information, please contact:

Arkansas Economic Development Commission

Business Development Section

One Capitol Mall

Little Rock, AR 72201

(501) 682-7675

II.Definitions

A. "Agreement" means a financial incentive agreement entered into pursuant to § 15-11-506, by and between the director and an approved company, with respect to a tourism attraction project;

B. "Approved company" means any eligible company that is seeking to undertake a tourism attraction project that has been approved by the Director after obtaining the review and advice of the Director of the Department of Parks and Tourism;

C. "Approved costs" mean:

1. Obligations incurred on or after the effective date of the financial incentive agreement associated with the construction, or expansion of a tourism attraction for labor and to vendors, contractors, subcontractors, builders, suppliers, delivery men, and material men in connection with the acquisition, construction, equipping, and installation of a tourism attraction project;

2. The costs of acquiring real property or rights in real property in connection with a tourism attraction project, and any costs incidental thereto;

3. The cost of contract bonds and of insurance of all kinds that may be required or necessary during the course of the acquisition, construction, equipping, and installation of a tourism attraction project which is not paid by the vendor, supplier, delivery man, contractor, or otherwise provided;

4. All costs of architectural and engineering services, including, but not limited to, estimates, plans and specifications, preliminary investigations, and supervision of construction and installation, as well as for the performance of all the duties required by or consequent to the acquisition, construction, equipping, and installation of a tourism attraction project;

5. All costs required to be paid under the terms of any contract for the acquisition, construction, equipping, and installation of a tourism attraction project;

6. All costs required for the installation of utilities in connection with a tourism attraction project, including, but not limited to, water, sewer, sewage treatment, gas, electricity, and communications, and including off-site construction of utility extensions paid for by the approved company; and

7. All other costs comparable with those described in this subsection.

8. "Approved costs" does not include:

(a) Costs incurred prior to the effective date of the financial incentive agreement, except for pre-construction costs.

(b) Expenditures for routine repair and maintenance that do not result in new construction, or expansion;

(c) Routine operating expenditures;

(d) Expenditures incurred at multiple facilities.

D. "Director" means the director of the Arkansas Economic Development Commission or the director's designated representative;

E. "Eligible company" means any corporation, limited liability company, partnership, registered limited liability partnership, sole proprietorship, or business trust, or any other entity that invests a minimum of five hundred thousand dollars ($500,000) in a high unemployment county or one million dollars ($1,000,000) in any other county for the purpose of constructing, operating or intending to operate a tourism attraction project, whether owned or leased, within the state that meets the standards promulgated by the director pursuant to § 15-11-504;

F. "Final approval" means the action taken by the director authorizing the eligible company to receive inducements under § 15-11-507 and Section 5 of Act 1135 of 1999;

G. "High unemployment" means an unemployment rate equal to or in excess of one hundred fifty percent (150%) of the state's average unemployment rate for the preceding calendar year as specified by statewide annual labor force statistics compiled by the Arkansas Department of Workforce Services, when the state's annual average unemployment rate is six percent (6%) or below. When the state's annual average unemployment rate is above six percent (6%), "high unemployment" means equal to or in excess of three percent (3%) above the state's average unemployment rate for the preceding calendar year as specified by statewide annual labor force statistics compiled by the Arkansas Department of Workforce Services.

H. "Increased state sales tax liability" means that portion of an approved company's reported state sales (gross receipts) tax liability resulting from taxable sales of goods and services to its customers at the tourism attraction for any monthly sales tax reporting period after the approved company provides the certification required by § 15-11-507(b) of Act 1135 of 1999, which exceeds the reported state sales tax liability for sales to its customers for the same month in the calendar year immediately preceding such certification. If an approved company purchases an existing tourism attraction which was selling goods and services at the time of purchase and which may or may not have been entitled to the benefits of this subchapter prior to such purchase, the 'increased state sales tax liability' resulting from any investments in the tourism attraction by the new owners means that portion of the approved company's reported state sales (gross receipts) tax liability resulting from taxable sales of goods and services to its customers at the tourism attraction for any monthly sales tax reporting period after the approved company provides the certification required by § 15-11-507(b) of Act 1135 of 1999, which exceeds the reported state sales tax liability for sales made by the seller of the tourism attraction for the same month in the calendar year immediately preceding such certification. The prohibitions against disclosure of confidential tax information provided in § 26-18-301 shall not apply for purposes of computing the credit available.

I. "Inducements" means the Arkansas sales tax credit as prescribed in § 15-11-507 and/or the Arkansas income tax credit as prescribed in Section 5 of Act 1135 of 1999;

J. "Investment Threshold" means the minimum amount of eligible project costs that must be incurred in order to qualify for eligibility;

K. "New full-time permanent employee" means a position or job which was created as a result of a tourism attraction project, and which is filled by one (1) or more employees or contractual employees who were Arkansas taxpayers during the year in which the tax credits or incentives were earned or claimed. The employee or employees must work an average of at least thirty (30) hours per week. Provided, however, in order to qualify for the provisions of this subchapter, a contractual employee must be offered a benefits package comparable to a direct employee of the business seeking incentives;

L. "Payroll" means the total taxable wages, including overtime and bonuses, paid during the preceding tax year of the approved tourism attraction to the new full-time permanent employees hired after the date of the signed financial incentive agreement;

M. "Preconstruction costs" means the cost of eligible items incurred before the start of construction, including:

1. Project planning costs;

2. Architectural and engineering fees;

3. Land

4. Feasibility Studies

5. Right-of-way purchases;

6. Utility extensions;

7. Site preparations;

8. Purchase of mineral rights;

9. Building demolition;

10. Builders risk insurance;

11. Capitalized start-up costs;

12. Deposits and process payments on eligible machinery and equipment; and

13. Other costs necessary to prepare for the start of construction;

N. "Tourism attraction" includes:

1. A cultural or historical site;

2. A recreational or entertainment facility;

3. An area of natural phenomenon or scenic beauty;

4. A theme park;

5. An amusement or entertainment park;

6. An indoor or outdoor play or music show;

7. Botanical gardens; and

8. Cultural or educational centers.

O. "Tourism attraction" does not include:

1. Lodging facilities, unless the facilities constitute a portion of a tourism attraction project and represent less that sixty percent (60%) of the total approved costs of the tourism attraction project, or unless the approved costs for the lodging facility exceeds five million dollars ($5,000,000) and is attached to a convention center containing seventy-five thousand (75,000) square feet or contains a minimum of twelve thousand (12,000) square feet of meeting or exhibit space;

2. Facilities that are primarily devoted to the retail sales of goods, unless the goods are created at the site of the tourism attraction project or if the sale of goods is incidental to the tourism attraction project;

3. Facilities that are not open to the general public;

4. Facilities that do not serve as a likely destination where individuals who are not residents of the state would remain overnight in commercial lodging at or near the tourism attraction project such as:

a. Movie Theaters

b. Bowling alleys

c. Fitness centers

d. Miniature Golf Courses

e. Go-Kart Tracks

f. Skating Rinks

g. Night Clubs

h. Retail Stores

i. Restaurants

j. Any other establishments deemed by the Director to primarily serve the local community and in-state residents.

5. Facilities owned by the State of Arkansas or a political subdivision of the state; or

6. Facilities established for the purpose of conducting legalized gambling. However, a facility regulated under § 23-110-101 et seq. or § 23-111-101 et seq. shall be a tourism attraction for purposes of this subchapter for any approval project as outlined in subsection (j)(1) of Act 1135 of 1999 or for an approved project relating to pari-mutuel racing at the facility and not for establishing a casino or for offering casino-style gambling.

P. "Tourism attraction project" or "project" means the acquisition, including the acquisition of real estate by leasehold interest with a minimum term of ten (10) years, construction, and equipping of a tourism attraction; the construction and installation of improvements to facilities necessary or desirable for the acquisition, construction, and installation of a tourism attraction, including, but not limited to, surveys; installation of utilities, which may include, water, sewer, sewage treatment, gas, electricity, communications, and similar facilities; and off-site construction of utility extensions to the boundaries of the real estate on which the facilities are located, all of which are to be used to improve the economic situation of the approved company in a manner that shall allow the approved company to attract persons.

III.Qualifications

A. Qualifying tourism attraction projects are defined as one or more of the following :

1. Cultural or historical site

2. Recreational or entertainment facilities

3. Areas of natural phenomenon or scenic beauty

4. Theme parks

5. Amusement or entertainment parks

6. Indoor or outdoor plays or music shows

7. Botanical gardens

8. Cultural or educational center

9. A lodging facility may qualify, but only if it meets one of the following tests:

(a) It must constitute a portion of a tourism attraction project and represent less than 60% of the total approved costs of the tourism attraction project; or

(b) If the approved cost for the lodging facility exceeds $5,000,000 and one of the following is met:

(1) The lodging facility is attached to a convention center containing a minimum of 75,000 square feet, or

(2) The lodging facility contains a minimum of twelve thousand square feet of meeting or exhibit space. Proposed projects under this category must be approved by the Director prior to April 1, 2009.

B. Eligible tourism attraction projects do not have to be new construction projects. The expansion and/or purchase of existing properties may be eligible. However, the amount of sales tax credit can only be taken against the increased sales tax liability over and above the amount paid by the business being sold or expanded for the corresponding tax month of the previous year.

C. Privately owned facilities constructed on state or federal lands (via a minimum 10-year lease) may be eligible.

D. Ineligible businesses include:

1. Lodging facilities (unless it meets the tests described above);

2. Retail sales facilities (unless the goods are created on-site or if sales are incidental to the overall project);

3. Facilities not open to the general public;

4. Facilities not likely to attract overnight guests from outside the state who would stay in commercial lodging near the attraction;

5. Facilities owned by the State of Arkansas or its political subdivisions;

6. Gambling facilities (unless for approved pari-mutuel racing currently regulated under Arkansas Code)

IV.Powers and Duties of the Economic Development Commission

A. The Director or designee of the Arkansas Economic Development Commission will review each application, making certain the project proposal meets the following minimum criteria:

1. the application shall be submitted prior to incurring any project cost, other than those costs defined as pre-construction cost.

2. the project shall have a marketing plan designed to attract at least 25% of its visitors from out-of-state;

3. shall cost at least $500,000 in high-unemployment counties or $1,000,000 in any other county;

4. shall have a significant and positive impact on the State, including an analysis of whether the project will compete directly with existing tourism attractions in the state;

5. shall produce sufficient revenues and public demand to be operating and open to the public on a regular and persistent basis;

6. shall be likely to attract overnight guests from outside the state who would stay in commercial lodging near the attraction;

7. shall not adversely affect existing employment in the state;

8. and other criteria that the Director may deem to apply.

B. Once the application has been reviewed, the applicant will be notified in writing of the results of the review.

C. Upon granting approval, the Director shall enter into a financial incentive agreement with an approved company with respect to its tourism attraction project. The terms and provisions of each financial incentive agreement shall include, but shall not be limited to:

1. The amount of approved costs, determined through negotiations with the Director and applicant.

2. The eligibility date for incurring project costs.

3. A date by which the approved company shall have completed the tourism attraction project (the Completion Date), provided that the Completion Date occurs within (2) years of the date of the financial incentive agreement unless an extension is granted. Within 3 months after the Completion Date, the approved company shall document the actual cost of the project through a certification of such costs by an independent certified public accountant acceptable to the Director.

4. Provisions that the term of the financial incentive agreement may be extended for a period of two (2) years by the Director if:

(i) such extension is also approved by the Director of the Arkansas Department of Finance and Administration or

(ii) the approved company has failed to complete the project as a result of unanticipated and unavoidable construction delays or a change in business ownership.

5. In any sales tax reporting period during which a financial incentive agreement is in effect, if the increased state sales tax liability of the approved company exceeds the state sales tax credit available to the approved company, then the approved company shall pay the excess to the state as sales tax;

6. Within 45 days after the end of each calendar year, the approved company shall supply the Director with such reports and certifications as the Director may request demonstrating to the satisfaction of the Director that the approved company is in compliance with the provisions of the Act; and

7. The approved company shall not receive a credit against the Arkansas sales tax imposed by Ark. Code Ann. § 26-52-301 et seq. with respect to any calendar year if in any calendar year following the first year of the financial incentive agreement or the agreed upon completion date, the project is not operating and open to the public on a regular and persistent basis:

8. The financial incentive agreement shall not be transferable or assignable by the approved company without the written consent of the Director.

9. If the approved company utilizes sales tax credits which are subsequently disallowed, then the approved company will be liable for the payment to the Director of the Department of Finance and Administration of all taxes resulting from the disallowance of the credits plus applicable penalties and interest.

D. The Arkansas Economic Development 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 upon an audit by the Revenue Division of the Department of Finance and Administration (DF & A).

V.Terms of the Financial Incentive Agreement

A. The following types of expenses directly related to the tourism attraction project may be included in the total approved costs that are eligible for sales tax credits:

1. Land (outright purchase or leasehold interest with 10-year minimum term);

2. Buildings at the tourism attraction site;

3. Land surveys and architectural/engineering fees;

4. Cost of contract bonds and insurance;

5. Installation of utilities paid by the approved company (including off-site extensions that are project specific);

6. Equipping of the tourist attraction; and

7. Other costs comparable to those described above can be approved on a case-by-case basis.

B. Certain approved costs defined as "pre-construction costs" will be eligible for sales tax credits regardless of the date the costs were incurred.

VI.Administration of Benefits

A. State Income Tax Credits (not eligible for lodging facilities)

1. Upon notification from the director that an approved company has entered into a tourism attraction project financial incentive agreement, the Director of the Department of Finance and Administration shall provide the approved company with such forms and instruction as are necessary to claim those credits.

2. The approved company shall certify the number and the payroll of the new full-time permanent employees to the Revenue Division of the Department of Finance and Administration.

3. Upon certification by the company, the Revenue Division of the Arkansas Department of Finance and Administration shall authorize an income tax credit equal to four percent (4%) of the payroll of the new full-time permanent employees of the approved tourism attraction project qualifying for benefits.

4. As used herein, the term "new full time permanent employee(s)" shall mean a person who (i) is an Arkansas taxpayer in the year the credits are claimed; (ii) is employed in a position or job created by virtue of the project, and (iii) has worked an average of not less than thirty (30) hours per week.

5. The income tax credits may be earned for a period of five (5) years from the effective date of the financial incentive agreement.

6. The income tax credits earned may be applied against the company's Arkansas state income tax liability for the succeeding nine (9) years or until the credit is entirely used, which ever occurs first.

7. The Director shall provide a copy of each financial incentive agreement entered into with an approved company to the Director of the Department of Finance and Administration.

B. Sales and Use Tax Credits

1. Upon receiving notification from the Director that an approved company has entered into a tourism attraction project financial incentive agreement and is entitled to the sales tax credits provided by this Act, the Director of the Department of Finance and Administration shall provide the approved company with such forms and instructions as are necessary to claim the credits.

2. An approved company shall be entitled to a sales and use tax credit upon certifying to the Director of the Department of Finance and Administration that it has met the investment threshold for the county in which it is located. The Director of the Department of Finance and Administration shall then issue a sales tax credit memorandum for the appropriate amount (25% for projects located in high-unemployment counties and 15% for all other projects) to the approved company. Subsequent requests for credit for additional certified approved costs in excess of the investment threshold shall be submitted annually for the term of the financial incentive agreement or until the project is completed, whichever occurs first.

3. The Director of the Department of Finance and Administration may require proof of expenditures. Additional credit memorandums may be issued as the approved company certifies additional expenditures of approved costs.

4. No sales tax credit memorandum shall be issued for any approved costs expended after the expiration of two (2) years from the date the financial incentive agreement was signed by the Director and the approved company. However, the Director, with the advice and consent of the Director of the Department of Finance and Administration, may authorize sales tax credits for approved costs expended up to four (4) years from the date the financial incentive agreement was signed if the Director determines that the failure to complete the project within two (2) years resulted from:

(a) Unanticipated and unavoidable delay in the construction of the project;

(b) The project, as originally planned, will require more than two (2) years to complete; or

(c) A change in business ownership or business structure resulting from a merger or acquisition.

(1) The reasons listed above shall be brought to the attention of the Director prior to the expiration of the initial two (2) year period, and a request shall be made to the Director during the two (2) years for an extension of time.

5. The credit memorandum issued may be used to offset a portion of the reported state sales (gross receipts) tax liability of the approved company for all sales tax reporting periods following the issuance of the credit memorandum. One hundred per cent (100%) of the credit may be used to offset increased sales tax liability during the first year, with any unused credits carried forward for nine (9) additional years. The credits are also subject to the following limitations:

(a) Only increased state sales tax liability resulting from sales by the approved company may be offset by the issued credit;

(b) All issued credit memorandums shall expire at the end of the month following expiration of the financial incentive agreement;

(c) The approved company shall have no obligation to refund or otherwise return any amount of this credit to the person from whom the sales tax was collected.

(d) By April 1 of each year, the Director of the Department of Finance and Administration shall certify to the Director the state sales and income tax liability of the approved companies receiving inducements under this section, and the amount of state sales and income tax credits taken during the preceding calendar year.

(e) The Director of the Department of Finance and Administration may promulgate administrative regulations as are necessary for the proper administration of this Act. The Director of the Department of Finance and Administration may also develop such forms and instructions as are necessary for an approved company to claim the sales and income tax credits provided by this act.

(f) The Director of the Department of Finance and Administration shall have the authority to obtain any information necessary from the approved company and the Director of Economic Development to verify that approved companies have received the proper amounts of sales tax credits as authorized by this act; the Director of the Department of Finance and Administration shall demand the repayment of any credits taken in excess of the credit allowed by this act.

(g) Qualified amusement parks entering into a financial incentive agreement on or after January 1, 2006 for an approved project that will exceed one million dollars ($1,000,000) are eligible for a sales tax credit 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 may use the credit to offset one hundred percent (100%) of its tax liability following the issuance of the credit.

The credit may be used to offset the qualified amusement park's sales tax liability for the Gross Receipts tax levied under the Arkansas Gross Receipts Act, § 26-52-101 seq.; and the Tourism gross receipts tax levied under § 26-52-1001 et seq. Any unused credit may be carried forward for a period on nine (9) years.

(h) The special provisions for qualified amusement parks provided in paragraph (g) above shall apply retroactively to July 1, 2006.

C. Calculation of Arkansas Income Tax Credits

1. This program provides an Arkansas income tax credit equal to four percent (4%) of the payroll of each new full-time permanent employee for a period of five (5) years from the effective date of the financial incentive agreement.

2. The calculations of the income tax credit is as follows:

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D. Calculation of Sales Tax Credit

1. This program offers a sales tax credit in the amount of twenty-five percent (25%) of total project costs if the approved tourism attraction is located in a high-unemployment area.

2. If the approved tourism attraction is located in any other county the program offers a sales tax credit in the amount of fifteen percent (15%) of the total project cost.

3. The calculation of the sales tax credit is as follows:

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VII.Restrictions

No person or entity may take advantage of this program and any other tax incentive program.

168.00.07 Ark. Code R. 002

8/31/2007