Exemptions from Sales and Use Taxes
Machinery and equipment used directly in manufacturing that are purchased for a new manufacturing facility or to replace existing machinery and equipment are exempt. Machinery and equipment required by Arkansas law to be purchased for air or water pollution control or for removal of sulfur pollutants from refined petroleum are also exempt.
Company Childcare Facilities
Arkansas offers tax incentives for businesses that provide childcare for their employees.
A business may choose between two state income tax credit options:
- A credit of 3.9% of the total annual payroll of the employees working in the childcare facility, or
- A one-time $5,000 state income tax credit for the first year that the business provides its employees with a childcare facility. Any unused credit may be carried forward two years.
In addition to either option, businesses may receive a refund on sales and use taxes on construction materials and furnishings purchased to equip an approved childcare facility.
To qualify for these incentives, the business must be approved to operate an early childcare program. Eligibility is determined by the Arkansas Department of Human Services, Division of Child Care and Early Childhood Education. The business may choose to operate the facility or contract the operations.
Arkansas allows taxpayers to receive an income tax credit for the purchase of equipment used exclusively for reduction, reuse or recycling of solid waste material for commercial purposes, whether or not for profit, and the cost of installation of such equipment by outside contractors.
Expenditures eligible for tax credit certification:
- waste reduction, reuse or recycling equipment used exclusively for waste reduction, reuse or recycling of solid waste for commercial purposes, whether or not for profit, including the cost of installation of such equipment by outside contractors;
- waste reduction, reuse or recycling equipment must be used exclusively in the collection, separation, processing, modification, conversion, treatment or manufacturing of products containing at least fifty percent (50%) recovered materials, of which at least ten percent (10%) of the recovered materials shall be post-consumer waste;
- the cost of replacing existing waste reduction, reuse or recycling equipment shall be eligible for certification only if the replacement provides greater capacity for recycling or provides the capability to collect, separate, process, modify, convert, treat, or manufacture additional or a different type of solid waste.The amount of the tax credit shall equal 30% of the cost of equipment and installation costs deemed eligible by the Arkansas Department of Environmental Quality. Credits may be carried forward for three consecutive years following the taxable year in which the credits accrued.
- Taxpayers receiving credit under this Act for the purchase of machinery and equipment shall not be entitled to any other state or local tax credit or deduction based on the purchase of the machinery or equipment, except normal depreciation.
Replacement and Repair of Manufacturing Machinery and Equipment Sales and Use Tax Refund
Act 1404 of 2013, as codified in §§ 26-52-447, 26-53-149 and 15-4-3501, establishes two options by which certain state sales and use taxes relating to the partial replacement and repair of machinery and equipment used directly in manufacturing may be refunded to eligible taxpayers beginning July 1, 2014.
The first option, which provides for a refund of one percentage point (1%) of the 5.875% sales and taxes levied under §§ 26-52-301, 26-52-302, 26-53-106 and 26-53 107, may be claimed by a taxpayer for the purchase and installation of certain machinery and equipment used directly in manufacturing and processing. To qualify for this refund, a taxpayer must hold a direct pay sales and use tax permit from the Arkansas Department of Finance and Administration (DFA).
The second option, which provides for an increased refund of all sales and use taxes (5.875%) levied under §§ 26-52-301, 26-52-302, 26-53-106 and 26-53-107, is a discretionary incentive that may be offered by the Director of the Arkansas Economic Development Commission (AEDC) to a taxpayer who undertakes a major maintenance and improvement project to purchase and install certain machinery and equipment used directly in manufacturing and processing.
To qualify for this discretionary refund, a taxpayer must:
- Be eligible for a refund of taxes under §§26-52-447 or 26-53-149 (partial replacement and repair of certain machinery and equipment);
- Hold a direct pay sales and use tax permit from the DFA; and when claiming the refund, must file their monthly direct pay sales and use tax report using the Department’s electronic tax report filing system.
- Enter into a financial incentive agreement with the AEDC for the major maintenance and improvement project;
- Expend at least $3 million on an approved major maintenance and improvement project that includes the purchase of tangible personal property and services that are either exempt or subject to partial refund of tax under §§26-52-402, 26-52-447, 26-53-114, or 26-53-149;
- File a completed Manufacturing Replacement and Repair Sales and Use Tax Refund Application with the AEDC;
- Receive approval from the Director of the AEDC to receive the increased refund of sales and use taxes for the major maintenance and improvement project.
Sales Tax Exemption on Electricity, Natural Gas, and Coal
Energy (electricity, natural gas, and coal) sold for use directly in the manufacturing process is exempt from sales tax.
Note: The sale of electricity, natural gas, and coal for use directly in the manufacturing process is subject to excise taxes levied in the Arkansas Constitution.
Arkansas provides a 30% state income tax credit to eligible companies for reimbursements they make on behalf of employees for approved educational expenses. The employees must successfully complete the course at an accredited Arkansas post-secondary educational institution. The credit authorized by this program cannot offset more than 25% of the company’s state income tax liability in any tax year.
Arkansas Historic Rehabilitation Income Tax Credit
(A.C.A. § 26-51-2201 et seq.) as amended by Act 567 of 2015. The Arkansas Historic Rehabilitation Income Tax Credit Program, administered by the Arkansas Historic Preservation Program, an agency of the Department of Arkansas Heritage, offers a 25% state income tax credit for certified rehabilitation of eligible income and non-income producing properties. The program has an annual aggregate cap of $4 million in credits; per project caps of $125,000 in credits for properties and $25,000 in credits for non-income producing properties.
The program is limited to one project per building in a 24-month period.
Credits are and may be carried forward for up to five years.
The program is scheduled to sunset on December 31, 2027.
For additional information and application information, including program rules, please reference the Rehabilitation Tax Credits information at ArkansasPreservation.com