Current through Register Vol. 49, No. 9, September, 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.
Act 465 of 2017 amended the refund options by:
* Increasing the refund available for taxes paid on purchases
related to the repair and partial replacement of manufacturing machinery and
equipment;
* Sunsetting the tax refund for major maintenance and improvement
programs; and
* Phasing in an exemption from tax for purchases related to the
repair and partial replacement of manufacturing machinery and equipment.
The first option, which provides for a graduated refund and
subsequent exemption of 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. Taxes levied under §§ 26-52- 301,
26-52-302, 26-53-106 and 26-53-107 subject to refund under this option are the
taxes in excess of the following rates:
1. Beginning July 1, 2014, four and
seven-eighths percent (4.875%);
2.
Beginning July 1, 2018, three and seven-eighths percent (3.875%);
3. Beginning July 1, 2019, two and
seven-eighths percent (2.875);
4.
Beginning July 1, 2020, one and seven-eighths percent (1.875%);
5. Beginning July 1, 2021, seven-eighths
percent (0.875%); and
6. Beginning
July 1, 2022, sales qualifying for the tax refund under this option are fully
exempt from taxes levied under §§
26-52-301, 26-52-302, 26-53-106 and
26-53-107.
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.
A taxpayer may apply for an increased refund for major
maintenance and improvement projects under the second option through June 30,
2022. An application for an increased refund for major maintenance and
improvement projects under the second option shall not be accepted on or after
July 1, 2022.
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 (24) 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 (48) 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; and
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).
