STATE STATUTES & CODES
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ARKANSAS STATUTES AND CODES
§ 15-4-1026 - Tax credit.
15-4-1026. Tax credit.
(a) (1) Subject to the limitations contained in this section, a person who purchases an equity interest in a capital development company in any of the calendar years 2003 -- 2015 is entitled to a credit against any state income tax liability or premium tax liability that may be imposed on the purchaser for any tax year commencing on or after the date of the purchase.
(2) However, within eighteen (18) months after receipt of the proceeds from the purchase of an equity interest in a company, the proceeds must be used in one (1) or more of the transactions described in subdivision (a)(3) of this section and for the purposes stated in 15-4-1016 or for operating expenses.
(3) Upon satisfaction of the conditions in subdivisions (a)(1) and (2) of this section, use of proceeds from the purchase described in subdivision (a)(1) of this section in the following transactions shall cause the purchaser to be eligible for the tax credit under subdivision (a)(1) of this section:
(A) Transactions in which one (1) or more persons purchase equity interests in a capital development company to create a pool of capital available for investment in entities approved by the capital development company's governing board;
(B) Transactions in which one (1) or more persons purchase equity interests in a capital development company and the proceeds of the purchases are invested by the capital development company at the direction of the purchasers into one (1) or more venture capital funds or private equity funds that have investment policies which conform to all or a portion of the capital development company's investment policy, if the governing board reviews and does not object to the use of the proceeds by the funds; and
(C) Transactions in which:
(i) A capital development company enters into an agreement with an entity approved by the governing board of the company;
(ii) The entity is required to identify the investors who will invest in the entity;
(iii) Receipt of the tax credit is contingent upon the investors' actually investing in the entity through the company; and
(iv) The governing board of the company determines that the entity would not be able to raise the funds needed for the entity's business without a tax credit.
(b) The credit shall be determined in the following manner:
(1) (A) The credit shall be equal to thirty-three and one-third percent (331/3%) of the actual purchase price paid for the equity interest to the company, which shall include any fees or commissions to underwriters or sales agents paid by the company.
(B) (i) However, the total amount of fees and commissions to underwriters or sales agents for which a credit may be taken shall not exceed fifteen percent (15%) of the actual purchase price.
(ii) No fees or commissions in excess of fifteen percent (15%) of the total purchase price may be considered in calculating the amount of the credit determined in this section;
(2) In any one (1) tax year, the credit allowed by this section shall not exceed fifty percent (50%) of the net Arkansas state income tax liability or premium tax liability of the taxpayer after all other credits and reductions in tax have been calculated;
(3) (A) Any credit in excess of the amount allowed by subdivision (b)(2) of this section for any one (1) tax year may be carried forward and applied against Arkansas state income tax or premium tax for the next-succeeding tax year and annually thereafter for a total period of eight (8) years next succeeding the year in which the equity interest in a company was purchased, subject to the provisions of subdivision (b)(2) of this section or until the credit is exhausted, whichever occurs first.
(B) In no event may the credit allowed by this section be allowed for any tax year ending after December 31, 2021; and
(4) An original purchaser of equity interests who seeks to qualify for the income tax credit or premium tax credit provided in this section must obtain and attach to the income tax return or premium tax return for the years the credit is claimed a certified statement from the company stating:
(A) The name and address of the original purchaser;
(B) The tax identification number of the person entitled to the credit;
(C) The original date of purchase of the equity interest;
(D) The number and type of equity interests purchased;
(E) The amount paid by the original purchaser for the equity interest;
(F) The amount of the tax credit associated with the purchase of the equity interest; and
(G) The amount of dividends and distributions previously paid by the company to the purchaser.
(c) (1) A transferee from an original purchaser is entitled to the tax credit described in this section only to the extent the credit is still available to and has not previously been used by the transferor.
(2) A transferee of equity interests or tax credits who seeks to qualify for the income tax credit or premium tax credit provided in this section must obtain and attach to the income tax return or premium tax return for the years the credit is claimed a certified statement from the company stating:
(A) The name and address of the original purchaser and all transferees;
(B) The tax identification number of all persons entitled to any portion of the original tax credit;
(C) The original date the equity interest was purchased;
(D) The number and type of equity interests purchased;
(E) The amount paid by the original purchaser for the equity interest;
(F) The amount of the tax credit associated with the purchase of the equity interest;
(G) The amount of the tax credit associated with the original purchase used by all previous owners of the equity interest or tax credit and the remaining amount of the tax credit available for use by the transferee; and
(H) The amount of dividends and distributions previously paid by the company to the original purchaser and all transferees.
(d) (1) If the owner of an equity interest in or a tax credit issued by a company is a pass-through entity for tax purposes, such as a limited liability company or a partnership, then the owner of the pass-through entity is entitled to the tax credit described in this section.
(2) If a pass-through entity entitled to a tax credit under subdivision (d)(1) of this section is owned by two (2) or more persons, then the tax credit may be allocated among the pass-through entity owners in the method selected by the owners as described in the governing documents of the pass-through entity or by other written agreement among the owners.
(e) (1) For the purpose of ascertaining the gain or loss from the sale or other disposition of an equity interest in a company, the owner of the equity interest shall reduce his or her basis in the equity interest by the amount of the tax credits previously deducted under this section.
(2) However, sale or other disposition under subdivision (e)(1) of this section does not include a transfer from the holder of an equity interest to the company in liquidation of the equity interest.
(3) This reduced basis shall be used by the original purchaser or transferee when calculating tax due under the Income Tax Act of 1929, 26-51-101 et seq.
(f) (1) If any of the proceeds from the purchase of equity interests in a company are not used for the purposes stated in 15-4-1016 or for operating expenses within eighteen (18) months after receipt, then for each person who previously claimed a tax credit under this section with respect to that purchase, the tax imposed by the Income Tax Act of 1929, 26-51-101 et seq., for the year in which the eighteen-month period ends shall be increased by the tax credit amount associated with the unused purchase proceeds.
(2) Within thirty (30) days after the expiration of the eighteen-month period, the company shall notify each person who claimed a tax credit under this section and the Department of Finance and Administration of the failure to use the proceeds and the tax recapture amount associated with the failure.
(g) (1) Except as provided in subdivision (g)(2) of this section, the total cumulative amount of tax credits available to all purchasers of equity interest in capital development companies under this section in any calendar year shall not exceed five million dollars ($5,000,000).
(2) For any calendar year, the maximum tax credit under subdivision (g)(1) of this section may be increased by an additional amount not to exceed one million two hundred fifty thousand dollars ($1,250,000) by the Director of the Department of Finance and Administration if a capital development company requests the increase and the requirements of subdivision (g)(3) of this section are met.
(3) By August 15 of the calendar year for which the maximum tax credit increase is requested, the director shall:
(A) Determine:
(i) The total amount of tax credits first claimed under this section during the most recent fiscal year;
(ii) The total amount of tax credits claimed under this section by all taxpayers during the most recent fiscal year; and
(iii) Based upon the amounts calculated under subdivisions (g)(3)(A)(i) and (ii) of this section, the estimated amount of tax credits that may be claimed under this section during the fiscal year that began on the most recent July 1;
(B) Based on the most recent revenue forecast and budget information, determine:
(i) The fiscal impact of the estimated tax credits under subdivision (g)(3)(A) of this section on the amount of general revenues available for distribution under 19-5-202 for the fiscal year that began on the most recent July 1, including amounts to be distributed for the support of public schools; and
(ii) The fiscal impact of increasing the maximum tax credit under subdivision (g)(2) of this section on the amount of general revenues available for distribution under 19-5-202 for the fiscal year that began on the most recent July 1, including amounts to be distributed for the support of public schools; and
(C) Certify the amount, if any, that the maximum tax credit shall be increased under subdivision (g)(2) of this section such that the resulting estimated amount of general revenues available for distribution under 19-5-202 for the fiscal year that began on the most recent July 1, including amounts to be distributed for the support of public schools, is sufficient to meet the budgeted needs of state agencies and public schools funded by general revenues.
(h) (1) No capital development company shall enter into an agreement or a commitment for the purchase by any person of equity interests in the capital development company on or after July 1, 2007.
(2) However, all agreements and commitments of the capital development company related to the purchase of equity interests in existence before July 1, 2007, and certified to the Arkansas Economic Development Commission shall remain valid and enforceable, shall be entitled to the tax credits set forth in this section, and shall be completed in accordance with their respective terms.
(a) (1) Subject to the limitations contained in this section, a person who purchases an equity interest in a capital development company in any of the calendar years 2003 -- 2015 is entitled to a credit against any state income tax liability or premium tax liability that may be imposed on the purchaser for any tax year commencing on or after the date of the purchase.
(2) However, within eighteen (18) months after receipt of the proceeds from the purchase of an equity interest in a company, the proceeds must be used in one (1) or more of the transactions described in subdivision (a)(3) of this section and for the purposes stated in 15-4-1016 or for operating expenses.
(3) Upon satisfaction of the conditions in subdivisions (a)(1) and (2) of this section, use of proceeds from the purchase described in subdivision (a)(1) of this section in the following transactions shall cause the purchaser to be eligible for the tax credit under subdivision (a)(1) of this section:
(A) Transactions in which one (1) or more persons purchase equity interests in a capital development company to create a pool of capital available for investment in entities approved by the capital development company's governing board;
(B) Transactions in which one (1) or more persons purchase equity interests in a capital development company and the proceeds of the purchases are invested by the capital development company at the direction of the purchasers into one (1) or more venture capital funds or private equity funds that have investment policies which conform to all or a portion of the capital development company's investment policy, if the governing board reviews and does not object to the use of the proceeds by the funds; and
(C) Transactions in which:
(i) A capital development company enters into an agreement with an entity approved by the governing board of the company;
(ii) The entity is required to identify the investors who will invest in the entity;
(iii) Receipt of the tax credit is contingent upon the investors' actually investing in the entity through the company; and
(iv) The governing board of the company determines that the entity would not be able to raise the funds needed for the entity's business without a tax credit.
(b) The credit shall be determined in the following manner:
(1) (A) The credit shall be equal to thirty-three and one-third percent (331/3%) of the actual purchase price paid for the equity interest to the company, which shall include any fees or commissions to underwriters or sales agents paid by the company.
(B) (i) However, the total amount of fees and commissions to underwriters or sales agents for which a credit may be taken shall not exceed fifteen percent (15%) of the actual purchase price.
(ii) No fees or commissions in excess of fifteen percent (15%) of the total purchase price may be considered in calculating the amount of the credit determined in this section;
(2) In any one (1) tax year, the credit allowed by this section shall not exceed fifty percent (50%) of the net Arkansas state income tax liability or premium tax liability of the taxpayer after all other credits and reductions in tax have been calculated;
(3) (A) Any credit in excess of the amount allowed by subdivision (b)(2) of this section for any one (1) tax year may be carried forward and applied against Arkansas state income tax or premium tax for the next-succeeding tax year and annually thereafter for a total period of eight (8) years next succeeding the year in which the equity interest in a company was purchased, subject to the provisions of subdivision (b)(2) of this section or until the credit is exhausted, whichever occurs first.
(B) In no event may the credit allowed by this section be allowed for any tax year ending after December 31, 2021; and
(4) An original purchaser of equity interests who seeks to qualify for the income tax credit or premium tax credit provided in this section must obtain and attach to the income tax return or premium tax return for the years the credit is claimed a certified statement from the company stating:
(A) The name and address of the original purchaser;
(B) The tax identification number of the person entitled to the credit;
(C) The original date of purchase of the equity interest;
(D) The number and type of equity interests purchased;
(E) The amount paid by the original purchaser for the equity interest;
(F) The amount of the tax credit associated with the purchase of the equity interest; and
(G) The amount of dividends and distributions previously paid by the company to the purchaser.
(c) (1) A transferee from an original purchaser is entitled to the tax credit described in this section only to the extent the credit is still available to and has not previously been used by the transferor.
(2) A transferee of equity interests or tax credits who seeks to qualify for the income tax credit or premium tax credit provided in this section must obtain and attach to the income tax return or premium tax return for the years the credit is claimed a certified statement from the company stating:
(A) The name and address of the original purchaser and all transferees;
(B) The tax identification number of all persons entitled to any portion of the original tax credit;
(C) The original date the equity interest was purchased;
(D) The number and type of equity interests purchased;
(E) The amount paid by the original purchaser for the equity interest;
(F) The amount of the tax credit associated with the purchase of the equity interest;
(G) The amount of the tax credit associated with the original purchase used by all previous owners of the equity interest or tax credit and the remaining amount of the tax credit available for use by the transferee; and
(H) The amount of dividends and distributions previously paid by the company to the original purchaser and all transferees.
(d) (1) If the owner of an equity interest in or a tax credit issued by a company is a pass-through entity for tax purposes, such as a limited liability company or a partnership, then the owner of the pass-through entity is entitled to the tax credit described in this section.
(2) If a pass-through entity entitled to a tax credit under subdivision (d)(1) of this section is owned by two (2) or more persons, then the tax credit may be allocated among the pass-through entity owners in the method selected by the owners as described in the governing documents of the pass-through entity or by other written agreement among the owners.
(e) (1) For the purpose of ascertaining the gain or loss from the sale or other disposition of an equity interest in a company, the owner of the equity interest shall reduce his or her basis in the equity interest by the amount of the tax credits previously deducted under this section.
(2) However, sale or other disposition under subdivision (e)(1) of this section does not include a transfer from the holder of an equity interest to the company in liquidation of the equity interest.
(3) This reduced basis shall be used by the original purchaser or transferee when calculating tax due under the Income Tax Act of 1929, 26-51-101 et seq.
(f) (1) If any of the proceeds from the purchase of equity interests in a company are not used for the purposes stated in 15-4-1016 or for operating expenses within eighteen (18) months after receipt, then for each person who previously claimed a tax credit under this section with respect to that purchase, the tax imposed by the Income Tax Act of 1929, 26-51-101 et seq., for the year in which the eighteen-month period ends shall be increased by the tax credit amount associated with the unused purchase proceeds.
(2) Within thirty (30) days after the expiration of the eighteen-month period, the company shall notify each person who claimed a tax credit under this section and the Department of Finance and Administration of the failure to use the proceeds and the tax recapture amount associated with the failure.
(g) (1) Except as provided in subdivision (g)(2) of this section, the total cumulative amount of tax credits available to all purchasers of equity interest in capital development companies under this section in any calendar year shall not exceed five million dollars ($5,000,000).
(2) For any calendar year, the maximum tax credit under subdivision (g)(1) of this section may be increased by an additional amount not to exceed one million two hundred fifty thousand dollars ($1,250,000) by the Director of the Department of Finance and Administration if a capital development company requests the increase and the requirements of subdivision (g)(3) of this section are met.
(3) By August 15 of the calendar year for which the maximum tax credit increase is requested, the director shall:
(A) Determine:
(i) The total amount of tax credits first claimed under this section during the most recent fiscal year;
(ii) The total amount of tax credits claimed under this section by all taxpayers during the most recent fiscal year; and
(iii) Based upon the amounts calculated under subdivisions (g)(3)(A)(i) and (ii) of this section, the estimated amount of tax credits that may be claimed under this section during the fiscal year that began on the most recent July 1;
(B) Based on the most recent revenue forecast and budget information, determine:
(i) The fiscal impact of the estimated tax credits under subdivision (g)(3)(A) of this section on the amount of general revenues available for distribution under 19-5-202 for the fiscal year that began on the most recent July 1, including amounts to be distributed for the support of public schools; and
(ii) The fiscal impact of increasing the maximum tax credit under subdivision (g)(2) of this section on the amount of general revenues available for distribution under 19-5-202 for the fiscal year that began on the most recent July 1, including amounts to be distributed for the support of public schools; and
(C) Certify the amount, if any, that the maximum tax credit shall be increased under subdivision (g)(2) of this section such that the resulting estimated amount of general revenues available for distribution under 19-5-202 for the fiscal year that began on the most recent July 1, including amounts to be distributed for the support of public schools, is sufficient to meet the budgeted needs of state agencies and public schools funded by general revenues.
(h) (1) No capital development company shall enter into an agreement or a commitment for the purchase by any person of equity interests in the capital development company on or after July 1, 2007.
(2) However, all agreements and commitments of the capital development company related to the purchase of equity interests in existence before July 1, 2007, and certified to the Arkansas Economic Development Commission shall remain valid and enforceable, shall be entitled to the tax credits set forth in this section, and shall be completed in accordance with their respective terms.
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