§ 15-4-2708 - Arkansas Statutes

LexisNexis Practice Insights

Arkansas Research and Development Tax Credit for In-House Research

15-4-2708. Research and development tax credits.

(a) A taxpayer who contracts with one (1) or more Arkansas colleges or universities in performing basic or applied research may qualify for the tax credit established under 26-51-1102(b) for qualified research expenditures, subject to the limitations established under 26-51-1103 and the documentation requirements of 26-51-1104.

(b) (1) New eligible businesses that conduct in-house research in a research facility operated by the business and that qualify for federal research and development tax credits may qualify for an income tax credit equal to twenty percent (20%) of the amount spent on in-house research that exceeds the base year for a period of three (3) years and the incremental increase in qualified research expenditures for the succeeding two (2) years, subject to the limitations established under 26-51-1103.

(A) For a new research facility, the base year is zero (0). Therefore, in the first three (3) years following the date of the financial incentive agreement, all eligible expenditures will qualify for the credit.

(B) Qualified research and development expenditures in the third year shall be used as a base to calculate the tax credit in the fourth year.

(C) Qualified research and development expenditures in the fourth year shall be used as a base to calculate the tax credit in the fifth year.

(2) Existing eligible businesses that conduct in-house research in a research facility operated by the business and that qualify for federal research and development tax credits may qualify for an income tax credit equal to twenty percent (20%) of the amount spent on in-house research that exceeds the base year for a period of three (3) years and the incremental increase in qualified research expenditures for the succeeding two (2) years, subject to the limitations established under 26-51-1103.

(A) For an existing research facility, the base year amount shall be the amount of eligible research and development expenditures incurred in the year prior to the year in which the financial incentive agreement was signed by the Arkansas Economic Development Commission.

(B) Qualified research and development expenditures in the third year shall be used as a base to calculate the tax credit in the fourth year.

(C) Qualified research and development expenditures in the fourth year shall be used as a base to calculate the tax credit in the fifth year.

(3) The income tax credit may be used to offset one hundred percent (100%) of an eligible business's annual income tax liability.

(4) Unused credits may be carried forward for a period not to exceed nine (9) years.

(5) A business claiming tax credits earned under this subsection may not receive the credit granted by 26-51-1102(b) for the same expenditures.

(6) (A) The term of the financial incentive agreement for in-house research authorized by this subsection shall be for a period not to exceed five (5) years.

(B) The financial incentive agreement may be renewed for a period not to exceed five (5) years upon the submittal and approval of a new application and project plan for benefits under this subsection.

(C) The business claiming a tax credit under this subsection shall certify annually to the commission the amount expended on in-house research.

(c) (1) Targeted businesses may qualify for an income tax credit equal to thirty-three percent (33%) of the amount spent on in-house research per year for the first five (5) tax years following the business' signing a financial incentive agreement with the commission, subject to the limitations established under 15-4-2709(d)(2).

(2) The credits earned by targeted businesses may be sold as authorized in 15-4-2709.

(d) (1) An Arkansas taxpayer may qualify for an income tax credit equal to thirty-three percent (33%) of the amount spent on the research for the first five (5) tax years following the business's signing a financial incentive agreement with the commission, subject to the limitations established under 26-51-1103 if the taxpayer invests in:

(A) In-house research in a strategic research area; or

(B) Projects under the research and development programs of the Arkansas Science and Technology Authority when the projects directly involve an Arkansas business and are approved by the Board of Directors of the Arkansas Science and Technology Authority under rules promulgated by the authority for those programs.

(2) However, the maximum tax credit for a qualified business engaged in a research area of strategic value or involved in research and development programs sponsored by the authority shall not exceed fifty thousand dollars ($50,000) per year.

(3) A business claiming tax credits earned under this subsection shall be prohibited from receiving the credit granted by 26-51-1102(b) for the same expenditures.

(4) (A) A business claiming tax credits earned under this subsection may offset one hundred percent (100%) of the business's Arkansas income tax liability in any one (1) year.

(B) Any unused income tax credits may be carried forward for nine (9) years after the year in which the credit was first earned or until exhausted, whichever event occurs first.

(e) To claim the credit granted under subsections (b)-(d) of this section, the taxpayer shall file with his or her return, as an attachment to the form prescribed by the Director of the Department of Finance and Administration, copies of documentation to show that the authority has approved the research expenditure as a part of a qualified in-house research program or under the research and development programs of the authority.