Arkansas R&D Tax Credit Case Study

The R&D tax credit is one of the most valuable credits leveraged by companies. The R&D credit yields billions of dollars in federal and state benefits to companies engaged in qualifying research. The R&D tax credit can provide a significant reduction to current and future tax liabilities and a source of cash in Arkansas.

Benefits

  • Dollar-for-dollar reduction in your state income tax liability
  • Arkansas Credit carried forward up to 9 consecutive tax periods

Qualifications

More companies in Arkansas can now qualify for the R&D tax credit. Companies are able to qualify R&D activities beginning with the development of concepts and extend to the point where a product, process, formula, or other business component is ready to be commercially released. If you are engaged in any research activities, looking into a potential R&D tax credit may be a great benefit. In addition, look back studies can recognize unclaimed credits for the last 3 or 4 open tax years.

Arkansas R&D Tax Credit Case Study

A medical research company in Forth Smith, Arkansas had never claimed the R&D Tax Credits before. This project involved the tax year 2021.   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.

FEDERAL
ARKANSAS
Year
Total QREs
Credit
Total QREs
Credit
2021
$750,000
$75,000
$300,000
$99,000

Four-Part Test

Qualified research activities are defined by the four-part test outlined below

  • Technological in Nature
    Activities must fundamentally rely on the principles of physical or biological science, engineering, or computer science.

  • Permitted Purpose
    Activities must be performed in an attempt to improve the functionality, performance, reliability, or quality of a new or existing business component.

  • Eliminate Uncertainty
    Activities intended to discover information that could eliminate technical uncertainty concerning the development or improvement of a product.

  • Experimentation
    All activities must include a process of experimentation including testing, modeling, simulating, and systematic trial and error.

Research and Development Tax Insights

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