Is Your Business On Target?
At the discretion of the AEDC Executive Director, targeted businesses may be offered special incentives designed to help new, knowledge-based, start-up businesses:
- A refund of sales and use taxes paid on the purchase of building materials and machinery and equipment associated with the approved project
- A transferable income tax credit equal to 10% of payroll for up to five years
- A cash rebate equal to 5% of eligible new payroll for up to 10 years
- A sales or income tax credit equal to 2%-8% of eligible investment
- A transferable income tax credit equal to 33% of eligible research and development expenditures
To qualify as a targeted business, companies must meet the following requirements and be classified by AEDC in one of the six targeted emerging technology sectors listed below:
- Be less than five years old
- Show proof of an equity investment of at least $250,000
- Pay at least 150% of the lesser of the state or county average hourly wage where the business is located
- Meet requisite payroll thresholds
Additional eligibility criteria may be required for individually targeted programs (sales and use tax refund for targeted businesses, payroll income tax credit for targeted businesses, payroll rebate for targeted business and targeted ArkPlus).
Emerging Technology Sectors
Advanced Materials & Manufacturing Systems, with emphases on:
- Electronics Manufacturing
- Energy-Efficient Storage Devices
- Environmental Issues Related to Materials & Manufacturing
- Photonics, Nanotechnology
Biotechnology, Bioengineering and Life Sciences, with emphases on:
- Biopharmaceuticals & Drug Discovery
- Cell Molecular Biology
- Medical Devices
- Protein Structure & Function
- Sensor Technology
Bio-Based Products, with emphases on:
- Automotive Components
- Engineered Products from Non-Traditional Biomass Sources
- Synthetic Transportation Fuels
Information Technology, with emphases on:
- Database Systems
- Distributed Systems
- Knowledge and Data Engineering
- Software Development
- State of the Art Applications of Information Technology to Bioinformatics and/or Healthcare
- Wireless Systems
Agriculture, Food and Environmental Sciences, with emphases on:
- Agricultural Medicine
- Distributed Energy Generation
- Energy Reduction
- Spatial Technology
- Waste Minimization
Transportation Logistics, with emphases on:
- Automated Systems
- Intelligent Material Handling
- Transportation Management Systems
Sales and Use Tax Refund for Targeted Businesses
This incentive program provides a refund of sales and use taxes paid on the purchases of building materials and taxable machinery and equipment associated with the approved project for targeted businesses, as defined above. In addition to meeting targeted business eligibility requirements, the business must invest at least $100,000 and meet the eligibility criteria of the Targeted Business Payroll Income Tax Credit Program.
A targeted business with an annual payroll in excess of one million dollars ($1 million) is excluded from participating in this program.
The application for a sales and use tax refund must be accompanied by an endorsement resolution from the local governing authority (city council or quorum court) that authorizes the refund of its local taxes.
Payroll Income Tax Credit for Targeted Businesses
The discretionary payroll income tax credit for targeted businesses assists start-up businesses in targeted sectors that pay significantly more than the state or county average wage of the county in which the business locates. A targeted business with an annual payroll in excess of $1 million is excluded from participating.
The benefit for a qualifying targeted business is a 10% income tax credit based on its annual payroll, with a cap of $100,000 per year in earned income tax credits. The incentive may be offered for a period not to exceed five years.
A unique feature of this incentive is the ability of the business that earns the targeted business income tax credit to sell the credits. The business must make an application to AEDC for the sale of credits. Upon approval by AEDC, the business may sell earned income tax credits.
Since one of the allowable costs under the research and development tax credits (discussed below) is the salary of a person performing research, a business earning job creation income tax credits for targeted businesses is prohibited from earning research and development tax credits, as authorized by § 15-4-2708 or by § 26- 51-1102(b) for the same expenditure.
Payroll Rebate for Targeted Businesses
Targeted businesses with payrolls exceeding $250,000 may be offered, at the discretion of the AEDC Executive Director, rebates of five percent of payroll for up to ten years. To qualify, the average hourly wage of the new, full-time permanent employees must be at least 150% of the state or county average hourly wage, whichever is less. The payroll rebate for targeted businesses may not be used in conjunction with the payroll income tax credit for targeted businesses.
Targeted businesses creating new payroll exceeding $250,000 may be offered, at the discretion of the AEDC Executive Director, income or sales and use tax credits based upon investment. Prior to the execution of the financial incentive agreement, the targeted business must elect to receive the credits as sales and use tax credits or income tax credits.
To qualify, the average hourly wage of the new, full-time permanent employees must be at least 150% of the state or county average hourly wage, whichever is less. Additionally, targeted businesses must invest a minimum of $250,000 within four years of the effective date of the financial incentive agreement.
The credit earned by the targeted business shall be based upon a percentage of the investment as follows:
Credits equal 2% of the investment from $250,000 up to$500,000 plus 4% of the investment in excess of $500,000up to $1,000,000 plus 6% of the investment in excess of $1,000,000 up to $2,000,000 plus 8% of the investment in excess of $2,000,000.
The percentage of tax liability that may be offset is determined by the average hourly wage paid to the new, full-time permanent employees as follows:
- A targeted business that pays at least 175% of the state or county average hourly wage, whichever is less, may offset 50% of its tax liability.
- A targeted business that pays at least 200% of the state or county average hourly wage, whichever is less, may offset 75% of its tax liability.
- A targeted business that pays at least 225% of the state or county average hourly wage, whichever is less, may offset 100% of its tax liability.
The income tax credit may be applied against the approved company’s Arkansas income tax liability. The sales and use tax credit may be applied against the company’s state sales and use tax liability as reported on its monthly sales and use tax report in the calendar year following the calendar year of expenditure. Any unused credit may be carried forward for a period not to exceed nine tax years after the tax year in which it was first earned.
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 and supplies used in the conduct of qualified research. 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.