Current through Register Vol. 49, No. 2, February 2024
I.
Introduction
Overview
Act 1404 of 2013, as amended and 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 shall hold
a direct pay or a limited 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 Executive 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 shall:
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 or a limited direct pay
sales and use tax permit from the DFA; and when claiming the refund, shall 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 prior to
incurring project expenditures;
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; and
6. Receive approval from the Executive
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, as amended.
III.
Effective Date
The effective date of Act 1404 of 2013 was July 1, 2014. The AEDC began
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 Executive 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); or
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 shall hold a direct pay or a limited
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
and
(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; and
(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
and
(ii) Contract
disclosure.
2. The AEDC Incentives Manager reviews the
application to determine that:
A. The taxpayer
holds a direct pay or a limited 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, as amended;
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; and
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 Executive Director of the
AEDC for signature.
5. The
Executive 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 Executive 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;
and
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 Executive 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).
