Arkansas Research and Development Tax Credit Summary
Arkansas offers a research and development (R&D) tax credit for qualified research expenses (QREs) occurring within the state. Credits may be claimed for up to 100% of the tax liability. Unused credits may be carried forward for up to 9 years. Some highlights of the Arkansas R&D tax credits include:
- In-House Research and Development: Businesses conducting research qualifying for federal R&D tax credits may claim a credit of 20% of QREs that exceed the base year, for a period of three years and the incremental increase in QREs for the succeeding two years. For a new in-house research facility, the base year is zero. Therefore, in the first three years following the date of the financial incentive agreement, all eligible expenditures can qualify for the credit. QREs in the 3rd and 4th year are used as the base year to calculate the credits in the 4th and 5th year, respectively. The agreement may be renewed for up to 5 years. May not be used with In-House Research by a Targeted Business Credit.
- Research and Development in Area of Strategic Value: This credit is equal to 33% of in-house QREs (up to $50,000 per taxpayer per year) in conducting research qualifying for federal R&D credits. Research must be in an area of strategic value OR for a project offered by the Arkansas Economic Development Commission (AEDC). Research in an area of strategic value means research in fields having long-term economic or commercial value to the state, and that have been identified in an AEDC-approved R&D plan. May not be used with In-House Research by a Targeted Business Credit.
- University Based Research and Development: An eligible business that contracts with an Arkansas college or university in performing research qualifying for federal R&D credits may qualify for a 33% credit for QREs. May be used with other In-House R&D Credits.
- In-House Research by a Targeted Business: Upon application and approval by the AEDC Executive Director, targeted businesses may claim a credit of 33% of the QREs incurred each year for up to five years. QREs include expenses incurred in the conduct of research qualifying for federal R&D tax credits. This credit may be sold upon application and approval by AEDC. A targeted business claiming this credit is prohibited from earning job creation tax credits for the same expenses and may not be used with other In-house R&D credits.To qualify as a targeted business, companies must: 1) be less than 5 years old, 2) show proof of an equity investment of at least $250,000, 3) pay at least 150% of the lesser of the state or county average hourly wage where the business is located, 4) meet requisite payroll thresholds, AND 5) additional eligibility criteria for individual targeted programs (sales and use tax refund for targeted businesses, payroll income tax credit for targeted businesses, payroll rebate for targeted businesses and targeted ArkPlus).A targeted business must also be classified by AEDC in one of the 6 targeted emerging technologies: 1) Advanced Materials & Manufacturing Systems, 2) Agricultural, Food and Environmental Sciences, 3) Bio-Based Products, 4) Biotechnology, Bioengineering and Life Sciences, 5) Information Technology, OR 6) Transportation Logistics.
Arkansas R&D Tax Credit Case Study
A medical research company in Little Rock had never before claimed the R&D Tax Credits. This project involved the tax year 2014. The Company qualified for the federal R&D Tax Credit of $75,000 and an additional $99,000 of state R&D Tax Credit in Arkansas.