Are R&D Tax Credits Available in Arkansas?

Are R&D Tax Credits Available in Arkansas?

Yes. The state of Arkansas provides the Research and Development (R&D) Tax Credit for qualified research expenses (QREs) occurring within the state. Taxpayers must invest in a project under one or more of the R&D programs offered by the Arkansas Science and Technology Authority (ASTA) when the projects directly involve an Arkansas business and must be approved by its Board of Directors. The credit may be earned for the first five years following the signing of a financial incentive agreement with the Arkansas Department of Economic Development (ADED).

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 in-house QREs that exceed the base, for a period of five 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 years are used as the base year to calculate the credits in the 4th and 5th years, 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 in conducting research qualifying for federal R&D credits. The credit for in-house research in an area of strategic value is capped at $50,000 per taxpayer per year. 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 has 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 one time 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. Targeted businesses are within the following business sectors: 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.

Utilization: The Arkansas R&D tax credit, including any carry forward amount, may be used to offset 100% of Arkansas state tax liabilities. Any amount in excess of the tax liability may be carried forward for a maximum of 9 consecutive tax periods.

Application Required: Taxpayers must apply to the ADED in order to qualify for the Arkansas R&D tax credit for research under programs of the ASTA. Application for this credit must include a project plan that clearly identifies the intent of the project, the expenditures planned, the project start and end dates, and a total project cost estimate. The ASTA specifies the application format for its programs. The ASTA must approve any research for which a taxpayer is seeking credit under this incentive. To claim a credit, a taxpayer must file the Certificate of Tax Credit issued by the ASTA with the tax return on which the credit is first claimed. (Reg. VIIE4b, Consolidated Incentive Act (Act 182 of 2003) Regulations, Research Under ASTA Programs)

Exclusive Provision: Taxpayers claiming the Arkansas R&D credit cannot receive the credit granted by Sec. 26-51-1102(b), A.C.A. for the same expenditures.