Current through Register Vol. 49, No. 9, September, 2024
I.
Introduction
Overview
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 use 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:
1. Be eligible for a refund of taxes under
§§
26-52-447 or 26-53-149 (partial replacement and repair of certain
machinery and equipment);
2. 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.
3. Enter into a financial incentive agreement
with the AEDC for the major maintenance and improvement project;
4. 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;
5. File a completed
Manufacturing Replacement and Repair Sales and Use Tax Refund Application with
the AEDC;
6. 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.
All existing excise tax exemptions, including without limitation
exemptions under §§
26-52-402 and 26-53-114, remain in full force and
effect and are not limited by this refund.
II.
Rulemaking Authority
The AEDC and DFA have authority, at §
15-4-3501(h), to
promulgate rules necessary to implement Act 1404 of 2013.
III.
Effective Date
The effective date of Act 1404 of 2013 is July 1, 2014. The AEDC
will begin accepting applications requesting an increased refund of all sales
and use taxes levied pursuant to the replacement and repair of manufacturing
machinery and equipment under §§
26-52-301, 26-52-302, 26-53-106 and
26-53-107,beginning July 1, 2014.
IV.
Definitions
1. "Certain machinery and equipment" means
items taxable under §§
26-52-301 and 26-52-302 on the sale of, and
§§
26-53-106 and 26-53-107 on the privilege of storing, using,
distributing, or consuming within this state, the following :
A. Machinery and equipment purchased to
modify, replace, or repair, either in whole or in part, existing machinery or
equipment used directly in producing, manufacturing, fabricating, assembling,
processing, finishing, or packaging articles of commerce at a manufacturing or
processing plant or facility in this state; and
B. Service relating to the initial
installation, alteration, addition, cleaning, refinishing, replacement, or
repair of machinery or equipment as defined in IV. 1(A) above;
2. "Commission" means the Arkansas
Economic Development Commission;
3.
"Major maintenance and improvement project" means a project with a defined
scope and beginning and ending dates, the range of which shall not exceed
twenty-four consecutive months, in which the taxpayer expends at least $3
million on the purchase of tangible personal property and services subject to
§§
26-52-447 and 26-53-149 that are either exempt from or subject to
a partial refund of tax under §§
26-52-402, 26-52-447, 26-53-114, or
26-53-149. The ending date of the project may be extended so that the range of
dates is increased to forty-eight consecutive months only with the written
approval of the Director of the AEDC and the Director of the Arkansas
Department of Finance and Administration;
4. "Manufacturing" or "processing" means the
same as defined under §
26-53-114(b) for items taxable under §§
26-53-106 and 26-53-107 and the same as defined under §
26-52-402(b) for
items taxable under §§
26-52-301 and 26-52-302;
5. "Positive return on taxpayer's investment"
means information provided by the taxpayer requesting an increased refund of
all sales and use taxes levied under §§
26-52-301, 26-52-302,
26-53-106 and 26-53-107 that reasonably proves that any or all of the following
dollar amounts, when calculated cumulatively, will offset the amount of taxes
refunded as a result of the major maintenance and improvement project:
a. Enhanced or retained productivity
(expressed in dollars);
b. Enhanced
or retained revenue, sales or output (expressed in dollars);
c. Enhanced or retained employee compensation
(expressed in dollars);
d. Enhanced
or retained taxes paid (expressed in dollars);
e. Any other quantifiable information
requested by the AEDC that the taxpayer may provide as reasonable proof of
positive return of the taxpayer's investment in the major maintenance and
improvement project;
6.
"Used directly" means the same as defined under §
26-52-402(c),
§
26-53-114(c) and Arkansas Gross Receipts Tax Rule GR-55.
V.
Application and Approval
Process for Discretionary 5.875% State Sales and Use Tax Refund)
Prerequisite: Taxpayers must hold a direct pay sales and
use tax permit from the DFA prior to filing an application with the AEDC
requesting approval of an increased tax refund for major maintenance and
improvement projects.
1. A
taxpayer submits to the AEDC Incentives Manager, a completed, signed
Manufacturing Replacement and Repair Sales and Use Tax Refund Application,
consisting of the following sections:
A.
Applicant information including:
(i) The
name, address, physical location and contact of the company for which the
application is being submitted.
(ii) A Statement of Project Need;
B. A Project Plan consisting of:
(i) Estimated start and completion dates of
project.
(ii) A description of the
project scope.
(iii) Project cost
estimates.
(iv) Data providing
reasonable proof that there will be a positive return on the taxpayer's
investment in the major maintenance and improvement project that is sufficient
to offset the refunded taxes.
C. Certifications
(i) Signature of company official.
(ii) Contract disclosure.
2. The AEDC Incentives
Manager reviews the application to determine that:
A. The taxpayer holds a direct pay sales and
use tax permit from the DFA.
B. The
taxpayer is eligible for the increased refund for major maintenance and
improvement projects provided for by Act 1404 of 2013.
C. The taxpayer has provided reasonable proof
that there will be a positive return on the taxpayer's investment in the major
maintenance and improvement project that is sufficient to offset the costs of
the refund.
D. The taxpayer has
provided a defined scope, beginning date, and ending date for the major
maintenance and improvement project;
E. The refund is reasonably necessary for the
taxpayer to remain competitive and preserve Arkansas jobs;
F. Major maintenance and improvement eligible
project expenditures will be at least $3 million.
3.
A. If
the AEDC determines that the application is complete and meets all
requirements, the AEDC Incentives Manager prepares a financial incentive
agreement and forwards one copy to the approved applicant for signature and
return.
B. Unapproved applicants
will be notified of the reasons for disapproval in writing by the
AEDC.
4. Upon receipt of
the signed financial incentive agreement from the approved applicant, the AEDC
Incentives Manager prepares an approval letter and forwards the financial
incentive agreement and the approval letter to the Director of the AEDC for
signature.
5. The Director of the
AEDC signs the financial incentive agreement and the approval letter and
forwards each to the AEDC Incentives Manager for distribution.
6. The AEDC Incentives Manager, on behalf of
the Director of the AEDC:
A. Forwards the
taxpayer's approved application, financial incentive agreement, signed approval
letter, and any other pertinent documentation to the DFA Director.
B. Forwards a copy of the executed financial
incentive agreement and approval letter to the approved applicant.
C. Retains copies of all original documents
in AEDC files.
7. The
taxpayer shall contact DFA with questions regarding refund claims.
8. A taxpayer that has been approved for the
increased refund for major maintenance and improvement projects may request
changes to the project plan only by written amendment submitted to and approved
by the Director of the AEDC.
VI.
Combinability of
Expenditures
An expenditure shall not qualify for both the increased refund
for major maintenance and improvement projects and the retention tax credit
provided for in §
15-4-2706 (c).
