Current through Register Vol. 49, No. 2, February 2024
I.
Introduction
InvestArk is a program designed to stimulate the expansion and
modernization of the existing facilities and equipment of eligible Arkansas
companies by offering credits against a portion of the sales and use tax
liability of the company making the investment. See Arkansas Code Annotated
§ 26-52-701 et. seq.
If approved to participate in InvestArk, a company may not receive
benefits under Advantage Arkansas (Arkansas Enterprise Zone Act of 1993, as
amended) for the same project.
For additional information contact:
Business Development Section
Arkansas Department of Economic Development
One Capitol Mall
Little Rock, Arkansas 72201
(501) 682-7675
II.
Definitions
A.
"Coal mining"
means an operation that hires a minimum of twenty-five (25) net new full-time
permanent employees and extracts coal or lignite from within the boundaries of
the State of Arkansas. (Act 1065 of 2001 added coal mining as a business
eligible for benefits under the Economic Investment Tax Credit Act.)
B.
"Corporate or regional
headquarters" means the home or center of operations, including
research and development, of a national or multinational corporation with no
retail sales to the general public.
C.
"Defense industry
project" means an investment of at least five million dollars
($5,000,000) and an increase in employment of at least two hundred and fifty
(250) full-time permanent employees by a company which manufactures components
for the defense industry and whose unit cost exceeds five hundred thousand
dollars ($500,000).
D.
"Department" means the Arkansas Department of Economic
Development.
E.
"Digital Content Production" means companies engaged
in the creation of product that includes acquiring, modeling, and manipulating
video imagery, film, and animation. These products are created in digital form
and are eligible for copyright under the copyright laws of the United States.
Outlets for digital content products may include broadcast television,
corporate presentations, cable shows, advertising, video games, movies and
themed entertainment outlets. For companies engaged in digital content
production to be eligible for benefits under this program, they must derive at
least seventy-five percent (75%) of their revenue from out of state sales and
have no retail sales to the general public.
F.
"Digital
Preservation" means companies engaged in the transformation,
storage, archiving and/or distribution of various forms of media which have
been transferred into a digital format. Media transformation into digital
content may include film, video or written materials. For companies engaged in
digital preservation to be eligible for benefits under this program, they must
derive at least seventy-five percent (75%) of their revenue from out of state
sales and have no retail sales to the general public.
G.
"Director" means
the director of the Arkansas Department of Economic Development.
H.
"Distribution
center" means a facility for the reception, storage, or shipping
of:
1. A business' own products which the
business wholesales to retail businesses or ships to its own retail
outlets;
2. Products owned by other
companies with which the business has contracts for storage and shipping if
seventy-five percent (75%) of the sales revenue is from out-of-state customers;
or
3. Products for sale to the
general public if seventy-five percent (75%) of the sales revenue is from
out-of-state customers;
I.
"Financial incentive
plan", within this regulation, the "financial incentive plan" may
also be referred to as a "financial incentive agreement" and consists of the
application and a project plan which describes the project costs, establishes
time frames for construction, addresses changes in employment and provides
other information identified in Section V.
J.
"In continuous operation in
Arkansas for at least two years" means the business applying for
the tax credit shall have on file with the Employment Security Division,
employment reports dated at least two (2) years (eight reporting quarters)
prior to the date of application for the tax incentive.
K.
"Ineligible
items" shall include any expenditure which cannot be attributed to
the project or expenditures that are incurred more than twelve (12) months
prior to submission of an application unless otherwise approved by the Director
of the Department of Economic Development and the Commissioner of
Revenues.
L.
"Modernization" means to increase efficiency or to
increase productivity of the business through investment in machinery and/or
equipment, not including costs for routine maintenance.
M.
"Motion picture production
company" means a company that produces any motion picture or
portion thereof for: display at theaters, video release, television shows,
music videos and special effects, titles and credits all of which are embodied
on film or prepared for digital presentation. Motion picture production
companies are generally a subset of those companies classified in SIC code 7812
and must have no retail sales to the general public and derive at least
seventy-five percent (75%) of their revenue from out of state sales.
N.
"Office sector"
means control centers that influence the environment in which data processing,
customer service, credit accounting, telemarketing, claims processing, and
other administrative functions that act as production centers are performed.
Office sector businesses can have no retail sales to the general
public.
O.
"Pre-construction costs" shall mean the cost of
eligible items incurred prior to the start of construction, including project
planning costs, architectural fees, deposits and process payments on eligible
machinery and equipment, rights-of-way purchases, land, and purchase of mineral
rights.
P.
"Project" means any eligible firm's construction,
expansion or modernization in Arkansas that costs more than five million
dollars ($5,000,000), or six million dollars ($6,000,000) for projects
involving multiple locations within the state of Arkansas. This cost includes
the cost of eligible items (land, buildings, and equipment) used in the
construction, expansion, or modernization that has been approved by the
Arkansas Department of Economic Development as a construction, expansion, or
modernization which qualifies for the credit.
Q.
"Routine
maintenance" means the replacement of existing machinery parts
with like parts.
R.
"Routine operating expenditures" means:
(1) costs normally associated with doing
business; or
(2) recurring
expenditures for items which in the normal course of business must be routinely
renewed, upgraded, improved, repaired, replaced or changed. Nothing contained
herein limits a company's ability to obtain credit for items which are
purchased as part of an approved project including material used in the
construction of a building or buildings or any addition, modernization, or
improvement thereon for housing any legitimate business enterprise and
machinery and equipment to be located in or in connection with such building or
buildings.
S.
"Start of Construction" shall mean any activity which
causes a physical change to the building and/or property identified as the site
of the approved project, excluding engineering surveys, soil tests, land
clearing, and extension of roads and utilities to the job site.
III.
To Qualify
for the Program a Business Must:
A. Be an eligible business as defined by one
or more of the following:
1. A manufacturer
classified in the Federal Standard Industrial Classification (SIC) codes 20-39,
including semiconductor and microelectronic manufacturers;
2. A computer business primarily engaged in
providing computer programming services; the design and development of
prepackaged software; a business engaged in digital content production and
preservation; computer processing and data preparation services; or information
retrieval services; computer and data processing consultants and developers.
All businesses in this group must derive at least seventy-five (75%) percent of
their revenue from sales outside of Arkansas and have no retail sales to the
public;
3. Businesses primarily
engaged in motion picture production, derive at least seventy-five percent
(75%) of their revenue from sales outside of Arkansas, and have no retail sales
to the public;
4. A business
primarily engaged in commercial physical and biological research as classified
by SIC code 8731;
5. A distribution
center, as defined in Section II;
6. An office sector business, with no retail
sales to the general public;
7. A
corporate or regional headquarters with no retail sales to the general
public.
8. A coal mining operation
employing a minimum of twenty-five (25) net new full-time permanent
employees.
B. Have had
continuous operations in the state of Arkansas for at least two (2) years prior
to the initial application to the Director
C. Invest at least $5 million ($5,000,000) in
fixed asset acquisition or construction, or $6 million ($6,000,000) in fixed
asset acquisition or construction at multiple locations.
D. Submit an application and a financial
incentive plan for approval to the Director of the Department at least thirty
(30) days prior to the start of construction and prior to incurring any costs,
other than pre-construction costs as defined herein. In the event a project
does not involve construction, the application must be received at least thirty
(30) days prior to the company taking delivery of the eligible project
machinery or equipment at the project site.
E. Obtain a direct-pay sales and use tax
permit from the Revenue Division of the Department of Finance and
Administration (DF&A) . A direct pay sales and use tax permit can be
obtained by calling DF&A Sales and Use Tax Section at (501) 682-7104.
F. Following the Department's
approval of the Company's application and financial incentive plan, the
Department of Finance & Administration will be responsible for monitoring
and administering the program.
IV.
Powers and Duties of
the Department of Economic Development
A. Determine that both the project and the
applicant meet minimum qualifications.
B. The Director shall use any resources
necessary to review the application to determine eligibility for the tax
credit. However, any portion of the project plan clearly identified as taxpayer
information under the Arkansas Tax Procedure Act is confidential and privileged
as is all other taxpayer information. Following review and approval, the
Department will forward all documents to DF&A with an approval letter. The
date of approval by the Director shall be the date the application is signed by
the Director. DF&A will contact the company and provide the forms and
instructions needed for the company to receive the credits. The Department will
also forward a copy of the approval letter and approved application to the
company contact.
C. The Arkansas
Department of Economic Development's approval of any application is for content
only. It does not constitute approval of all items listed on the application or
the project plan. These items will be reviewed and either approved or ruled
ineligible by an audit by the Revenue Division of the Department of Finance and
Administration (DF&A) .
D.
DF&A is authorized to conduct an audit to determine the eligibility of
expenses. This audit may be conducted after credits have been approved and
used. If expenditures upon which credits have been calculated, awarded, and
used are found to be ineligible, the taxpayer will be liable for payment of all
taxes determined to be due.
E. If a
company is determined to be ineligible, the Department will forward a letter to
the company stating the reasons why they are ineligible for benefits. In the
event the company disagrees with the decision on qualification rendered by the
Department Director, the company shall within fifteen (15) days of receipt of
notification of ineligibility from the Director, give notice of said
disagreement and request a meeting to review the project plan. The Director
shall arrange for a meeting to discuss the disagreement within fifteen (15)
days of the company's notification of the disagreement.
F. In the event the disagreement cannot be
resolved by these parties, the company (applicant) has the right to further
appeal through the Arkansas Administrative Procedures Act.
V.
Terms of the Incentive
Agreement
A. Financial
Incentive Plan
As part of the application, and at least thirty (30) days prior to the
start of construction, the company must submit a financial incentive plan to
the Director of the Department. The financial incentive plan shall address the
following:
1.
Total
project cost - the plan should estimate expenditures for each
category of expenditures listed on the annual reporting form required by the
Commissioner of Revenue. If project costs exceed the initial project cost
estimate included in the financial incentive plan, the business shall amend the
financial incentive plan to include updated costs figures. Amendments that
exceed fifty percent (50%) of the original financial incentive plan estimate
shall be submitted as a new project. An amendment shall not change the start
date of the original project.
2.
Construction period - the plan should address the time
frames involved in the project indicating start dates and expected completion
dates. In no event should construction begin on the project prior to approval
by the Department.
3.
Contractors - it is encouraged that Arkansas based
contractors be used whenever possible.
4.
Employment - the
plan should address any changes in the number of employees resulting from the
planned project.
5.
Benefits, products, or services - the plan should
include a description of the benefits, product(s), or service(s) that will
result from the construction, modernization, or expansion.
B. The financial incentive plan must contain
the signature of the Chief Executive Officer, or the officer primarily
responsible for the Arkansas plant operations of the company applying for the
tax credits.
C. The financial
incentive plan shall be submitted to the following address:
Director
Arkansas Department of Economic Development
One Capitol Mall
Little Rock, AR 72201
D. Eligible Items for Calculation of Sales
and Use Tax Credits
1.
"Eligible
Items" shall include, but is not limited to: project planning
costs, construction labor costs (including on-site direct labor and
supervision, whether employed by a contractor or the project owner);
architectural/engineering fees; right-of-way purchases; utility extensions;
site preparation; parking lots; disposal or containment systems; water and
sewer treatment systems; rail spurs; streets and roads; purchase of mineral
rights; land; building renovation; production, processing, and testing
equipment; freight charges; building demolition; material handling equipment,
drainage systems; water tanks and reservoirs; storage facilities; equipment
rental; contractor's cost plus fees; builders risk insurance; original spare
parts; job administrative expenses; office furnishings and equipment; rolling
stock (does not include motor vehicles); capitalized start-up costs as
recognized by generally accepted accounting principals; construction material,
and other costs related to the construction and expansion.
2.
"Production and Processing
equipment" includes machinery and equipment essential for the
receiving, storing, processing and testing of raw materials, and for the
production, storage, testing, and shipping of finished products. These include
facilities for the production of: steam, electricity, chemicals, and other
materials that are essential to the manufacturing process but which are
consumed in the manufacturing process and do not become essential components of
the finished product.
3.
"Excluded Costs" includes costs incurred at any
company location other than those specifically identified in the project plan.
Any costs incurred prior to 30 days following approval of the application by
the Department will be excluded, with the exception of those pre-construction
costs as defined herein. All expenses which, upon examination by the Department
of Finance and Administration, are deemed to be regular maintenance costs, or
are deemed to be outside the scope of the project or the project plan, are
ineligible as either a qualification for the five million dollars ($5,000,000)
minimum or six million dollars ($6,000,000) minimum, or for computation of
credits. The eligibility of questionable items will be determined by the
Department of Finance and Administration.
VI.
Administration of
Benefits
A. Each company
seeking a credit shall apply for and, if eligible, will receive a direct-pay
sales and use tax permit issued by DF&A.
B. The Director of the Department of Economic
Development shall certify to DF&A that the business meets the eligibility
requirements and shall advise DF&A of the estimated amount of the project
expenditures. Actual project expenditures and resulting tax credits will be
verified by DF&A in accordance with established audit procedures. Credits
issued prior to the audit, if found to be ineligible, may be rescinded upon
audit, and a tax liability to the applicant may result.
C. Following approval of the application, an
eligible business shall file an Annual Project Expenditure report (Form MIC
2000) on or before January 31 of each year until the project is completed. The
annual project report shall be mailed to:
Department of Finance & Administration
Tax Credits/Special Refunds Section
P.O. Box 1272
Little Rock, AR 72203-1272
D. A memo of credit not exceeding seven
percent (7%) of the annual qualifying project expenditures shall be issued by
the Commissioner of Revenue to the company annually for each project and shall
be used on subsequent Direct Pay Sales and Use Tax reports. The Commissioner of
Revenue shall issue the credit memo by the tenth
(10th) day of the month following the month in which
the Annual Project Expenditure report is filed. The credit memo shall be
attached to and used by the company as a credit against the regular monthly
Direct Pay State Sales and Use Tax report as long as the credit does not exceed
fifty percent (50%) of the company's total state sales and use tax liability
for each monthly report. The company shall remit to the Commissioner of Revenue
with the monthly Direct Pay State Sales and Use Tax report and credit memo, a
check for the remaining fifty percent (50%) balance due after applying the
credit. The company may begin to claim credit immediately on receipt of the
credit memo.
E. If the company
files the Annual Project Expenditure reports and also the direct pay sales and
use tax reports on time but does not receive a credit memo in sufficient time
to claim credit for each month in the calendar year, the company may (upon
issuance of the credit memo) claim refunds for those months and in the amounts
for which it could have claimed credit in the calendar year if the memo of
credit had been issued in a timely manner.
F. The credit memo shall be reduced by the
amount of the refunds if approved. Direct Pay Sales and Use Tax reports will be
timely filed if mailed by the twentieth (20th) day
of the month following the month being reported. Credit memos will be
considered mailed timely if mailed by the tenth
(10th) day of the month following the timely filing
dates set out in these regulations for the Annual Project Expenditure reports
and the Direct Pay Sales and Use Tax reports.
G. The oldest memo of credit for each direct
pay number should be exhausted prior to the use of subsequent memo of credit
issued for subsequent calendar year expenditures for the same project or
projects.
H. Except for defense
industry projects, unused credits may be carried forward, not to exceed six (6)
years, beyond the year in which the credit originated or until the credit is
exhausted, whichever occurs first. For eligible defense industry projects, if
the credit is not used in the calendar year following the expenditure, the
credit may be carried forward to the next succeeding calendar year for a total
of nine (9) years following the year in which the credit was first available
for use or until the credit is exhausted, whichever occurs first.
I. All local sales and use taxes must be
remitted in full to the Commissioner of Revenue. No credit shall be taken for
the payment of these sales and use taxes.
J. The credit shall be applied to Direct Pay
taxable purchases after all applicable deductions and other credits available
to the company have been utilized. Under no circumstances may the credit be
used for the payment of any penalties or interest assessed against a company by
the Commissioner of Revenue.
K. In
no event shall the credit used on any regular return be more than fifty percent
(50%) of the eligible business' total state sales and use tax liability for the
reporting period, except for a defense industry project. A company with an
eligible defense industry project may claim a credit for one hundred percent
(100%) of the sales and use tax liability for the reporting period.
L. Accurate and up-to-date records of all
expenditures for all of the approved projects shall be maintained by the
company and made available for inspection and audit by the Commissioner of
Revenue pursuant to the Arkansas Tax Procedure Act.
M. The Commissioner of Revenue may examine
those records necessary and specific to the project to determine credit
eligibility. Any credits disallowed will be subject to payment in
full.
N. For all projects approved
after July 1, 1997, all expenditures toward the project cost must be incurred
within five (5) years from the date of certification of the financial incentive
plan by the Director of the Department of Economic Development.
VII.
Restrictions
No person or entity may take advantage of the sales and use tax credit
benefits of InvestArk, and receive benefits under Advantage Arkansas (Arkansas
Enterprise Zone Act of 1993 - ACA § 15-4-1701 et seq.) for the same
project.