Arkansas’s Research and Development incentive programs are intended to provide incentives for university-based research, in-house research, and research and development in start-up, technology-based enterprises. Tax credits under these programs may be carried forward for nine years and may offset up to 100% of a business’ tax liability in a given year.
In-House Research and Development
New and existing eligible businesses that conduct “in-house” research that qualifies for federal research and development tax credits may be offered state tax credits at the discretion of the AEDC Executive Director. The credit allowed is 20% of qualified research expenditures that exceed the baseline expenditure established in the preceding year for a period of five years. The tax credits may be used to offset up to 100% of a company’s annual income tax liability and unused credits may be carried forward for nine years.
In-House Research by a Targeted Business
Targeted businesses, at the discretion of the AEDC Executive Director, may be offered income tax credits equal to 33% of the qualified research and development expenditures incurred each year for up to five years. The application for this income tax credit shall include a project plan, which clearly identifies the intent of the project, the expenditures planned, the start and end dates of the project and an estimate of total project costs.
Qualified research expenditures include in-house expenses for taxable wages paid to a full-time permanent employee or "contractual employee," as defined in the Act, for performing qualified services. Qualified research must satisfy all of the following tests in order to qualify:
- The activity must be undertaken for the purpose of discovering information which is technological in nature;
- The application of technological information must be intended to be useful in the new or improved business component; and
- Substantially all of the activities related to the research effort must constitute elements of a process of experimentation relating to a new or improved function, performance, reliability or quality.
Income tax credit for research and development earned by targeted businesses may be sold. The business must make an application to AEDC for the sale of credits earned under this section. Upon application and approval by AEDC, the business may sell earned income tax credits.
A targeted business earning research and development tax credits is prohibited from earning job creation tax credits, as authorized by § 15-4-2709 or research tax credits as authorized by § 15-4-2708(a), for the same expenditure.
Combination with other incentives: The income tax credit for research by a targeted business authorized by 15-4-2708(c) may not be used with:
- Other in-house research and development incentives as authorized by § 15-4-2708(b) or § 15-4-2708(d)(1)(A); or
- Any other incentive in Act 182 of 2003 (Consolidated Incentive Act of 2003) for the same expenditures.
Research and Development in Area of Strategic Value
The Strategic Value Research and Development incentives are for qualifying businesses that invest in: 1) in-house research in an area of strategic value; or 2) a research and development project offered by the Arkansas Science and Technology Authority. 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 the research and development plan approved from time to time by the Board of Directors of the Arkansas Science and Technology Authority.
The income tax credit is equal to 33% of qualified research expenditures. The maximum tax credit that may be claimed by a taxpayer under this program is $50,000 per tax year.
University-Based Research and Development
An eligible business that contracts with one or more Arkansas colleges or universities in performing research may qualify for a 33% income tax credit for qualified research expenditures.