RULE 168.00.09-001 - Rules for Administering the Consolidated Incentive Act of 2003; the Tourism Development Act of 1997; and the Non-Profit Incentive Act of 2005

RULE 168.00.09-001. Rules for Administering the Consolidated Incentive Act of 2003; the Tourism Development Act of 1997; and the Non-Profit Incentive Act of 2005

I. Introduction

Act 182 of 2003 consolidates six previously existing incentives into one incentive package. The consolidated incentives include:

* Enterprise Zone (Advantage Arkansas);

* Economic Investment Tax Credit (InvestArk);

* Economic Development Incentive Act (Create Rebate);

* Arkansas Economic Development Act (AEDA);

* Emerging Technology Development Act; and

* Biotechnology Training and Development Act.

The Consolidated Incentive Act of 2003 also provides incentives for targeted businesses that allow earned income tax credits to be sold, which will allow these targeted businesses to realize the benefits of the incentive earlier. In addition, it expands the opportunities for qualified businesses to earn income tax credits based on research and development expenditures.

Other benefits of consolidating incentives include the uniformity of definitions and administration of the various incentives.

A financial incentive agreement will be signed with each eligible business that qualifies for an incentive under this act and is approved by the Commission. The financial incentive agreement will be the primary document outlining the benefits to be received and the start and end date of the project. It will also serve as the primary source document when the Department of Finance and Administration audits the business to verify compliance.

The financial incentive agreement shall:

* Specify the effective date of the agreement;

* Specify the term of the agreement, which shall be calculated from the date the agreement is signed by the business and the Commission;

* Specify the incentive the business is to receive;

* Specify the investment and/or payroll threshold requirements necessary to qualify for eligibility.

* Specify the eligible business' responsibilities for certifying eligibility requirements; and

* Specify the approved business' responsibilities for failure to meet or maintain eligibility requirements.

II. Definitions

1. "Applied research" means any activity that seeks to utilize, synthesize, or apply existing knowledge, information, or resources to the resolution of a specific problem, question, or issue;

2. "The Authority" means the Arkansas Science and Technology Authority.

3. "Average hourly wage" means "Payroll" as defined in § 15-4-2703, (29), divided by the number of hours worked to earn the "payroll". For purposes of counting the number of hours worked for salaried employees, forty (40) hours per week shall be used. The "Average Hourly Wage" determined at the signing of the agreement shall be the threshold for the term of the agreement;

4. "Basic research" means any original investigation for the advancement of scientific or technological knowledge;

5. "Business component" means any product, process, computer software, technique, formula or invention held for sale, lease or license or used in trade or business of the taxpayer;

6. "Contractual employee" means an employee who:

A. May be included in the payroll calculations of a business qualifying for benefits under this act and is under the direct supervision of the business receiving benefits under this act, but is an employee of a business other than the one receiving benefits under this act;

B. Otherwise meets the requirements of a new full-time permanent employee of the business receiving benefits under this act; and

C. Receives a benefits package comparable to direct employees of the business receiving benefits under this act;

7. "Corporate headquarters" means:

A. The facility or portion of a facility where corporate staff employees are physically employed, and where the majority of the company's financial, personnel, legal, planning, information technology, or other headquarters related functions are handled either on a regional basis or national basis. These facilities include establishments primarily engaged in administering, overseeing, and managing other establishments of the company or enterprise as classified in sector 551114 of the North American Industrial Classification System (NAICS) effective January 1, 2007;

B. A corporate headquarters must be a regional corporate headquarters or a national corporate headquarters;

8. "County or state average hourly wage" means

A. The weighted average weekly earnings for Arkansans in all industries, both statewide and county wide, as calculated by the Arkansas Department of Workforce Services in their most recent Annual Covered Employment and Earnings publication, divided by forty (40).

B. The average hourly wage threshold determined at the signing of the financial incentive agreement shall be the threshold for the term of the agreement;

9. "Commission" means the Arkansas Economic Development Commission;

10. "Director" means the Executive Director of the Arkansas Economic Development Commission;

11. "Distribution center" means a facility for the reception, storage, and shipping of:

A. A business' own products or products that the business wholesales to retail businesses or ships to its own retail outlets if seventy-five percent (75%) of the sales revenues are from out of state customers;

B. Products owned by other companies with which the business has contracts for storage and shipping if seventy-five percent (75%) of the sales revenues of the product owner are from out-of-state customers; or

C. Products for sale to the general public if seventy-five percent (75%) of the sales revenues are from out-of-state customers;

12. "Eligible businesses" means non-retail businesses engaged in commerce for profit that meet the eligibility requirements for the applicable incentive offered by this subchapter, and fall into one (1) or more of the following categories:

A.

(i) Manufacturers classified in sectors 31-33 in the North American Industrial Classification System (NAICS), as in effect January 1, 2007.

(ii) Manufacturers classified in sectors 20-39 according to the Standard Industrial Classification (SIC) standards but which are classified under NAICS in another sector;

B.

(i) Businesses primarily engaged in the design and development of prepackaged software, digital content production and preservation, computer processing and data preparation services, or information retrieval services.

(ii) All businesses in this group shall derive at least seventy-five percent (75%) of their sales revenue from out of state;

C.

(i) Businesses primarily engaged in motion picture productions;

(ii) All businesses in this group shall derive at least seventy-five percent (75%) of their sales revenue from out of state;

D. A distribution center or intermodal facility;

E. An office sector business;

F. A national or regional corporate headquarters, North American Industrial Classification System (NAICS) Code 551114, as in effect January 1, 2007;

G. Firms primarily engaged in commercial, physical and biological research as classified in the North American Industrial Classification System (NAICS) code 541710, as in effect January 1, 2007;

H.

(i) Scientific and technical services business.

(ii)

(a) All businesses in this group shall derive at least seventy-five percent (75%) of their sales revenue from out of state; and

(b)

(1) The average hourly wages paid by businesses in this group shall exceed one hundred fifty percent (150%) of the county or state average hourly wage, whichever is less.

(2) The average hourly wage threshold determined at the signing of the financial incentive agreement shall be the threshold for the term of the agreement; and

I. The Director may classify a non-retail business as an eligible business if the following conditions exist:

(i) The business must derive at least seventy-five percent (75%) of its sales revenue from out of state; and

(ii) The business proposes to pay wages in excess of one hundred ten percent (110%) of the county or state average wage, whichever is less.

13. "Endorsement resolution" means a resolution approved by the governing body of the municipality or county within whose jurisdiction the project facility is located which:

1. Approves the specific entity's participation in the program; and

2. Specifies that the municipality or county authorizes the Department of Finance and Administration to refund local sales and use taxes to the approved business. A municipality or county can authorize the refund of a tax levied by it but may not authorize a refund of any tax not levied by it.

14. "Equity investment" means capital invested in common or preferred stock, royalty or intellectual property rights, limited partnership interests, limited liability company interests, and any other securities or rights that evidence ownership in private businesses, including a federal agency's award of a Small Business Innovation Research (SBIR) or Small Business Technology Transfer (STTR) grant. For the purposes of this act, subordinated debt may also be considered an equity investment;

15. "Existing employees" means:

A. Those employees hired by the business before the date the financial incentive agreement was signed.

B.

(i) Existing employees may be considered new full-time permanent employees only if:

(ii)

(a) The position or job filled by the existing employee was created in accordance with the signed financial incentive agreement; and

(b) The position vacated by the existing employee was either filled by a subsequent employee or no subsequent employee will be hired because the business no longer conducts the particular business activity requiring that classification;

C. If the Director of the Economic Development Commission and the Director of the Department of Finance and Administration find that a significant impairment of job opportunities for existing employees will otherwise occur, they may jointly authorize existing employees to qualify as new full-time permanent employees;

16. "Facility" means a single physical location at which the eligible business is conducting its operations. A physical location may consist of more than one facility of the eligible business located on non-contiguous property within the same incorporated city that is conducting similar or complimentary activity.

17. "Financial incentive agreement" means an agreement entered into by an eligible business and the Commission to provide the business an incentive to locate a new business or expand an existing business in Arkansas;

18. "Fund" means the Arkansas Economic Development Incentive Fund;

19. "Governing authority" means the quorum court of a county or the governing body of a municipality;

20. "In-house research" means:

A.

(i) Applied research supported by the business through the purchase of supplies for research activities and payment of wages and usual fringe benefits for employees of the business who conduct research activities in research facilities:

(a) Dedicated to the conduct of research activities;

(b) Operated by the business; and

(c) Performed primarily under laboratory, clinical, or field experimental conditions for the purpose of reducing a concept or idea to practice, or to advance a concept or idea, or improvement thereon, to the point of practical application.

(ii) "In-house research" includes experimental or laboratory activity to develop new products, improve existing products, or develop new uses of products, but only to the extent that activity is conducted in Arkansas.

(iii) "In-house research" may also include contractual agreements with one or more Arkansas colleges or universities, or other research organizations to perform research for a "targeted business" as defined in § 15-4-2703, provided that the President of the Arkansas Science and Technology Authority determines in writing, in advance of the research being performed, that the research by the college or university or other research organization is essential to the core function of the targeted business.

B. "In-house research" does not include tests or inspection of materials or products for quality control, efficiency surveys, management studies, other market research, or any other ordinary and necessary expenses of conducting business;

21. "Intellectual property" means an invention, discovery, or new idea that the legal entity responsible for commercialization has decided to legally protect for possible commercial gain, based on the disclosure of the creator;

22. "Intermodal facility" means a facility with more than one (1) mode of interconnected movement of freight, commerce, or passengers;

23. "Investment threshold" means the minimum amount of investment in project cost that must be incurred in order to qualify for eligibility;

24. "Invest" or "Investment" means money expended by or on behalf of an approved eligible business that seeks to begin or expand operations in Arkansas and, without the infusion of capital, the location or expansion may not occur.

25. "Lease" means a right to possession of real property for a specific term in return for consideration, as determined in a lease agreement by both parties.

26. "Modernization" means:

A. An increase in efficiency or productivity of a business through investment in machinery, equipment, or both;

B. "Modernization" does not include costs for routine maintenance or the installation of equipment that does not improve efficiency or productivity, except for expenditures for pollution control equipment mandated by state or federal laws or regulations;

27. "National corporate headquarters" means the sole corporate headquarters in the nation that handles headquarters related functions on a national basis;

28. "New full-time permanent employee" means:

A.

(i) A position or job that was created pursuant to the signed financial incentive agreement and that is filled by one (1) or more employees or contractual employees working at the facility identified in the financial incentive agreement who were Arkansas taxpayers during the year in which the tax credits or incentives were earned. Existing employees may not be considered new full-time permanent employees unless certain conditions are met as defined herein.

(ii) The position or job held by the employee or employees shall have been filled for at least twenty-six (26) consecutive weeks with an average of at least thirty (30) hours per week.

B. However, to qualify under this act, a contractual employee shall be offered a benefits package comparable to a direct employee of the business seeking incentives under this act;

29. "Non-retail business" means a business that derives less than ten percent (10%) of its total Arkansas revenue from sales to the general public;

30. "Office sector business" means:

A. Business operations that support primary business needs, including, but not limited to, customer service, credit accounting, telemarketing, claims processing, and other administrative functions;

B. All businesses in this group must be non-retail businesses and derive at least seventy-five percent (75%) of their sales revenue from out of state;

31. "Payroll" means the total taxable wages, including overtime and bonuses, paid during the preceding tax year of the eligible business to new full-time permanent employees hired after the date of the signed financial incentive agreement;

32. "Person" means:

A. An individual, trust, estate, fiduciary, firm, partnership, limited liability company, or corporation.

B. "Person" includes:

(i) The directors, officers, agents, and employees of any person;

(ii) Beneficiaries, members, managers, and partners; and

(iii) Any county or municipal subdivision of the state;

33. "Preconstruction costs" means the cost of eligible items incurred before the start of construction, including;

(A) Project planning costs;

(B) Architectural and engineering fees;

(C) Right-of-way purchases;

(D) Utility extensions;

(E) Site preparations;

(F) Purchase of mineral rights;

(G) Building demolition;

(H) Builder's risk insurance;

(I) Capitalized start-up costs;

(J) Deposits and process payments on eligible machinery and equipment; and

(K) Other costs necessary to prepare for the start of construction;

34. "Project" means costs associated with the:

A.

(i) Construction of a new plant or facility;

(ii) Expansion of an established plant or facility by adding to the building, production equipment, or support infrastructure; or

(iii) Modernization of an established plant or facility through the replacement of production or processing equipment or support infrastructure that improves efficiency or productivity.

B. "Project" does not include:

(i) Expenditures for routine repair and maintenance that do not result in new construction, expansion or modernization;

(ii) Routine operating expenditures;

(iii) Expenditures incurred at multiple facilities; or

(iv) The purchase or acquisition of an existing business unless:

(a) There is sufficient documentation that the existing business was closed; and

(b) The purchase of the existing business will result in the retention of the jobs that would have been lost due to the closure.

C. Eligible project costs must be incurred within four (4) years from the date the financial incentive agreement was signed by the Commission;

35. "Project plan" means a plan:

A. Submitted to the Commission containing such information as may be required by the Director to determine eligibility for benefits; and

B. That, if approved, is a supplement to the financial incentive agreement;

36. "Qualified business" means an eligible business that:

A. Has met the qualifications for one (1) or more economic development incentives authorized by this act; and

B.

(i) Has signed a financial incentive agreement with the Commission; or

(ii) Is involved in a research and development program administered by the Arkansas Science and Technology Authority;

37. "Qualified research expenditures" means the sum of any amounts which are paid or incurred by an Arkansas taxpayer during the taxable year in funding a qualified research program which has been approved for tax credit treatment under rules and regulations promulgated by the Commission;

38. "Region" or "regional" means a geographic area comprised of this state and a contiguous state;

39. "Regional corporate headquarters" means:

(A) the location where a headquarters' staff performs functions on a regional basis that involve the services of administration, planning, research and development, marketing, personnel, legal, computer, or telecommunications;

(B) A function on a regional basis does not include a function involving manufacturing, processing, warehousing, distributing, wholesaling activities or the operations of a call center;

40. "Research and development programs of the Arkansas Science and Technology Authority" means statutory programs operated by the Arkansas Science and Technology Authority under §§ 15-3-101 to 15-3-135;

41. "Research area of strategic value" means research in fields having long-term economic or commercial value to the state, and that have been identified in the research and development plan approved from time to time by the Board of Directors of the Arkansas Science and Technology Authority;

42. "Scientific and technical services business" means a business:

A. Primarily engaged in performing scientific and technical activities for others, including:

(i) Architectural and engineering design; or

(ii) Computer programming and computer systems design; or

B. Selling expertise; or

C. Having production processes that are almost wholly dependent on worker skills; and

D. Deriving at least seventy-five percent (75%) of their sales revenue from out of state; and

E. Paying average hourly wages that exceed one hundred fifty percent (150%) of the county or state average hourly wage, whichever is less;

43. "Start of construction" means any activity that causes a physical change to the building, property, or both, identified as the site of the approved project, but excluding engineering surveys, soil tests, land clearing, and extension of roads and utilities to the project site;

44. "Strategic research" means research that has strategic economic or long-term commercial value to the state and that is identified in the research and development plan approved from time to time by the Board of Directors of the Arkansas Science and Technology Authority;

45. "Support infrastructure" means physical assets necessary for the business to operate, including, but not limited to, water systems, wastewater systems, gas and electric utilities, roads, bridges, parking lots and communication infrastructure;

46. "Targeted businesses" means:

A. A grouping of growing business sectors, the businesses of which:

(i) Have been operating in the state for less than five (5) years. For purposes of determining this criteria, the targeted business is considered operating in Arkansas when the minimum annual payroll threshold is met and the minimum equity investment has been constructively received. Once these thresholds are met, the business has five (5) years in which it is eligible to apply as targeted business;

(ii) Pay at least one hundred and fifty percent (150%) of the lesser of the county or state average wage; and

(iii) That have been selected to receive special benefits;

B. Those groupings, not to exceed six (6), include the following:

(i) Advanced materials and manufacturing systems;

(ii) Agriculture, food and environmental sciences;

(iii) Biotechnology, bioengineering and life sciences;

(iv) Information technology;

(v) Transportation logistics;

(vi) Bio-based products;

47. "Technological information" means information derived from basic or applied research that provides an improved practical understanding of the business component; and

48. "Tiers" means the ranking of the seventy-five (75) counties of Arkansas into four (4) divisions that delineate the economic prosperity of the counties and allow for different levels of benefits.

III. Tiers

Except for the retention investment credits (InvestArk) in § 15-4-2706(c), the research and development credits in § 15-4-2708, and the payroll income tax credit for targeted businesses in § 15-4-2709; all benefits provided in this act are determined in relation to the tier of the county in which the project is located. The state's 75 counties are divided into four tiers, with Tier 1 counties being the most prosperous counties and Tier 4 counties being the least prosperous counties. Tiers are determined annually by the Arkansas Economic Development Commission by ranking four variables: poverty rate, population growth, per capita income and unemployment rate. A county ranking is determined for each of these variables using a consistent source and the four rankings are totaled and divided by four to obtain an overall ranking. It is the intention of the Arkansas Economic Development Commission to place 15 counties in Tier 1 and 20 counties in Tiers 2, 3 and 4. If there is a tie between two or more counties for overall rankings at the break point for tiers, the counties with a tie score will be placed in the higher tier.

A county's tier ranking, determined on the effective date of any incentive agreement under the Consolidated Incentive Act, shall establish the thresholds and benefits for the term of the agreement.

A county's tier might be moved to one higher tier if the county has experienced a sudden and severe period of economic distress, as indicated by a loss of more than five percent of the employed labor force. The most recent Labor Market Information publication, published by the Arkansas Department of Workforce Services, is used as the reference to determine a loss of five percent of the employed labor force. The movement to a higher tier is authorized by action of the Arkansas Economic Development Council after having received a request from a county official from within the county in question. A business that had signed a financial incentive agreement with the Commission prior to the action of the Council to move a county to a higher tier, shall receive the benefit assigned to it at the time of the signing of the financial incentive agreement for the duration of the agreement, regardless of any subsequent change of a county's tier assignment.

IV. Powers and Duties of the Economic Development Commission

The Commission shall administer the provisions of the Consolidated Incentive Act of 2003 and shall have the following powers and duties in addition to those mentioned in other laws of the state:

1. To promulgate rules and regulations in accordance with the Administrative Procedures Act, § 25-15-201 et seq., necessary to carry out the provisions of the Consolidated Incentive Act of 2003;

2. To provide the Department of Finance and Administration with a copy of each financial incentive agreement entered into by the Commission with each qualifying business;

3. To assist the governing authority in obtaining assistance from any other department of state government, including assistance to new businesses and industries;

4. To assist any employer or prospective employer with a qualifying project in obtaining the benefits of any incentive or inducement program authorized by state law;

5. To act as a liaison between other state agencies and businesses and industries to assure that both the spirit and intent of this act are met;

6. To make disbursements from the Economic Development Incentive Fund to qualified businesses as authorized in § 15-4-2707 of the Consolidated Incentive Act of 2003; and

7. The Director of the Commission is authorized to negotiate proposals on behalf of the state with prospective businesses which are considering locating a new facility or expanding an existing facility that would seek the benefits of §§ 15-4- 2706(b), 15-4-2706(e), 15-4-2707, 15-4-2708(c) or 15-4-2709.

V. Administration

1.

A. If the annual payroll threshold of the business applying for benefits under this act is not met within twenty-four (24) months after the signing of the financial incentive agreement, the business may request, in writing for an extension of time to reach the required payroll threshold.

B.

(i) If the Director of the Commission and the Director of the Department of Finance and Administration find that the approved business has presented compelling reasons for an extension of time, the Director of the Commission may grant an extension of time not to exceed forty- eight (48) months.

(ii) However, the extension on projects applying for benefits under § 15-4-2705 are limited to a twenty-four (24) month extension.

C.

(i) If a business fails to reach the annual payroll threshold before the expiration of the twenty-four (24) months, or the time period established by a subsequent extension of time, that business will be liable for the repayment of all benefits previously received by the business.

(ii)

(a) After a business has failed to reach the annual payroll threshold in a timely manner, the Department of Finance and Administration shall have two (2) years to collect benefits previously received by the business or file a lawsuit to enforce the repayment provisions.

(b)

(1) If the annual payroll of a business receiving benefits under this act falls below the payroll threshold for qualification in a year subsequent to the one in which it initially qualified for the incentive, the benefits outlined in the financial incentive agreement will be terminated unless the business files a written application for an extension of benefits with the Commission explaining why the payroll has fallen below the level required for qualification.

(2) The Director of the Commission and the Director of the Department of Finance and Administration may approve the request for extension of time, not to exceed twenty-four (24) months, for the business to bring the payroll back up to the requisite threshold amount and may approve the continuation of benefits during the period the extension is granted.

(3) If the business fails to reach the payroll threshold before the expiration of the time period established by a subsequent extension of time, the business shall be liable for the repayment of all benefits paid to the business after it no longer qualified for the benefits.

(c)

(1) If a business fails to reach the investment threshold before the expiration of the four (4) year time limit, that business will be liable for the repayment of all benefits previously received by the business.

(2) After a business has failed to reach the investment threshold of this act in a timely manner, the Department of Finance and Administration shall have two (2) years to collect benefits previously received by the business or file a lawsuit to enforce the repayment provisions.

(d)

(1) If a business fails to reach the average hourly wage requirement for benefits under this act within twenty-four (24) months of the effective date of the financial incentive agreement, the business will be liable for the repayment of all benefits previously received by the business.

(2) After a business has failed to meet the hourly wage requirements, the Department of Finance and Administration shall have two (2) years to collect benefits previously received by the business or file a lawsuit to enforce the repayment provisions.

(e)

(1) If a business fails to meet the non-retail business requirements of this act, the business will be liable for the repayment of all benefits previously received by the business.

(2) After a business has failed to meet the non-retail business requirements, the Department of Finance and Administration shall have two (2) years to collect benefits previously received by the business or file a lawsuit to enforce the repayment provisions.

(f)

(1) Eligible businesses whose qualification depends on deriving seventy-five percent (75%) of their sales from out-of-state customers shall meet this requirement within three (3) years from the date of their financial incentive agreement.

(2)(A) If the requirement is not met within three (3) years of the signed financial incentive agreement, the business may request, in writing, an extension of time to reach the required sales threshold. (B) If the Director of the Commission finds that the business has presented compelling reasons for an extension of time, the director may grant an extension of time not to exceed twenty-four (24) months.

(g)

(1) If a business fails to timely meet the out-of-state sales requirements of this act, the business will be liable for the repayment of all benefits previously received by the business.

(2) After a business has failed to meet the out-of-state sales requirements, the Department of Finance and Administration shall have two (2) years to collect benefits previously received by the business or file a lawsuit to enforce the repayment provisions.

(h)

(1) If a business fails to notify the Department of Finance and Administration that the annual payroll of the business has fallen below the threshold for qualification for and retention of any incentive authorized by this act, that business will be liable for the repayment of all benefits which were paid to the business after it no longer qualified for the benefits.

(2) After a business has failed to notify the Department of Finance and Administration that the business has fallen below the payroll threshold, the Department of Finance and Administration shall have two (2) years to collect benefits previously received by the business or file a lawsuit to enforce the repayment provisions.

(3) Interest shall also be due at the rate of ten percent (10%) per annum.

(i) The Department of Finance and Administration may obtain whatever information is necessary from a participating business and from the Arkansas Department of Workforce Services to verify that a business that has entered into financial incentive agreements with the Commission is complying with the terms of the financial incentive agreements and reporting accurate information concerning investments, payrolls, and out-of-state revenues to the Department of Finance and Administration.

(j) The Department of Finance and Administration may file a lawsuit in the Circuit Court of Pulaski County, or the circuit court in any county where a program participant is located, to enforce the repayment provisions of this act.

(k)

(1) If a business fails to satisfy or maintain any other requirement or threshold of this act, that business will be liable for the repayment of all benefits received after it no longer qualified.

(2) After a business has failed to comply with the requirements or thresholds of this act, the Department of Finance and Administration shall have two (2) years to collect benefits previously received by the business or file a lawsuit to enforce the repayment provisions.

(l) If a repayment is required as a result of not complying with the requirements or thresholds of this act, interest shall be due at the rate of ten percent (10%) per annum.

VI. Coordination with other economic development incentives

To provide an orderly transition between the Consolidated Incentive Act of 2003 and the six incentive programs it incorporates from previous legislative actions, § 15-4-2714 specifies that any eligible business that signs a financial incentive agreement with the Commission prior to the effective date of the Consolidated Incentive Act of 2003 (March 3, 2003) shall be provided only the benefits authorized under one of the following six existing incentives:

1. Biotechnology Training and Development Act, §§ 2-8-101 to 2-8-109;

2. Economic Development Incentive Act of 1993 (Create Rebate), §§ 15-4-1601 to 15-4-1609;

3. Arkansas Enterprise Zone Act of 1993, §§ 15-4-1701 to 15-4-1709;

4. Arkansas Economic Development Act of 1995, §§ 15-4-1901 to 15-4-1908;

5. Economic Investment Tax Credit Act, §§ 26-52-701 to 26-52-706; and

6. Arkansas Emerging Technology Development Act of 1999, §§ 15-4-2101 to 15-4-2107.

Eligible businesses signing an agreement after the effective date of the Consolidated Incentive Act of 2003 (March 3, 2003) shall receive only the benefits for which they qualify, or are approved for, under the Consolidated Incentive Act of 2003. Benefits for the same project cannot be obtained under the Consolidated Incentive Act of 2003 and any of the incentives, enumerated above, which it replaced.

In the section that follows, each incentive program will be addressed individually and restrictions on the use of that incentive with other incentives will be noted.

VII. Incentive programs contained within the Consolidated Incentive Act of 2003

The incentive programs below require that a potentially eligible business submit an application and a project plan to the Commission prior to incurring project costs and hiring new employees associated with the project. In some cases, once an application is processed and signed by the Commission, the application, with supporting information, becomes a financial incentive agreement.

The date an application is received by the Commission is the earliest date benefits may be accrued. An application should be submitted prior to incurring any project cost or hiring new employees associated with the project.

A. Job Creation Income Tax Credit (Advantage Arkansas) - Act 182 of 2003 § 15- 4-2705.

The Advantage Arkansas program provides an Arkansas income tax credit based upon a percentage of the annual payroll paid to the new full-time permanent employees hired as a result of an approved project. The tier in which the project is located determines the qualifying payroll threshold as well as the income tax benefit calculation.

Pursuant to Act 716 of 2009 for agreements with an effective date on or after July 31, 2009, in all tiers, in order to qualify for the benefits of this program, the proposed average hourly wage of the eligible business applying for these benefits must be equal to, or greater than, the lowest county average hourly wage calculated by the Commission based on the most recent calendar year data published by the Arkansas Department of Workforce Services.

The date of the financial incentive agreement is the beginning date in determining when the payroll threshold must be met. Only those employees hired after the date of the financial incentive agreement are eligible for the income tax credits (except as provided in Section II (15)).

The income tax credit earned cannot be used to offset more than 50% of a business' income tax liability in any one tax year. Any unused credits can be carried forward for nine (9) years beyond the year in which they were earned or until exhausted, whichever occurs first.

Income tax credits are earned in the tax year in which the new full-time permanent employees qualify after the financial incentive agreement was signed with the Commission. At the end of each tax year, during the term of the agreement, it is the responsibility of the qualified business to file the Advantage Arkansas Program Employee Payroll Certification Audit Request with the Department of Finance and Administration (DF&A). This certification provides the number of new permanent employees and their payroll during the preceding tax year and is the mechanism to initiate the verification audit. Therefore, the company must certify annually at the end of each tax year to DF& A.

The Company shall be entitled to receive income tax credits for which it has remained eligible under the Act and for which has provided timely certification in support thereof, for each subsequent tax year during the term of the agreement. The term of the financial incentive agreement shall be for a period of sixty (60) months, beginning on the date of the approved financial incentive agreement.

The income tax credit for the tax year in which new employees qualify will be based on the payroll paid to each new full-time permanent employee from their hire date to the end of the tax year. In order to be counted as a new full-time permanent employee during any tax year, the employee must have worked a minimum of twenty-six (26) consecutive weeks with an average of at least thirty (30) hours per week. The payroll threshold of the new full-time permanent employees must be met by the business within twenty-four (24) months following the date the financial incentive agreement was signed (except as provided in Section V (1).

The threshold for qualifying for the Advantage Arkansas job creation tax credit and the benefit received is dependent upon the tier in which the project is located on the effective date of the financial incentive agreement:

1. Tier 1 Counties - An eligible business must have a payroll of new full-time permanent employees in excess of one hundred twenty-five thousand dollars ($125,000) in order to qualify. The benefit is a tax credit equal to one percent (1%) of the payroll paid to the new full-time permanent employees for the term of the agreement;

2. Tier 2 Counties - An eligible business must have a payroll of new full-time permanent employees in excess of one hundred thousand dollars ($100,000) in order to qualify. The benefit is a tax credit equal to two percent (2%) of the payroll paid to the new full-time permanent employees for the term of the agreement;

3. Tier 3 Counties - An eligible business must have a payroll of new full-time permanent employees in excess of seventy-five thousand dollars ($75,000) in order to qualify. The benefit is a tax credit equal to three percent (3%) of the payroll paid to the new full-time permanent employees for the term of the agreement; and

4. Tier 4 Counties - An eligible business must have a payroll of new full-time permanent employees in excess of fifty thousand dollars ($50,000) in order to qualify. The benefit is a tax credit equal to four percent (4%) of the payroll paid to the new full-time permanent employees for the term of the agreement.

Example: An eligible business intends to expand its operation in a Tier 3 county and will be adding 25 new full-time permanent employees earning $15 per hour. In a Tier 3 county, a payroll threshold of $75,000 must be met in order to qualify for the job creation tax credit equal to three percent of payroll. ($15 per hour X 2080 hours = $31,200 per employee X 25 jobs = $780,000 annual payroll X 3% = $23,400 income tax credit earned for each of the next five years.) This example assumes that all 25 new full-time permanent employees were hired at the beginning of the first year and worked forty (40) hours per week.

Notes: Benefit calculations could change given the following circumstances:

* The number of jobs is increased or decreased;

* If all of the new jobs are not filled at the beginning of the first year;

* The pay level is decreased or increased; and

* If the payroll falls below the $75,000 required for qualification in a Tier 3 county, the business may request an extension of up to 24 months to regain the minimum payroll threshold. If the business fails to regain the threshold amount, the business shall be liable for repayment of any benefits received after it no longer qualified.

Combination with other incentives: The job creation income tax credit (Advantage Arkansas) authorized in § 15-4-2705 may be combined with:

* The research and development income tax credit for university based research authorized by § 15-4-2708(a);

* The research and development income tax credit for in-house research authorized by § 15-4-2708(b); and

* Either the retention investment incentive (InvestArk) authorized in § 15-4-2706(c)

* The sales and use tax refund investment incentive (Tax Back) authorized by § 15-4-2706(d).

B. Payroll Rebate - Act 182 of 2003 § 15-4-2707.

The payroll rebate incentive, also known as "Create Rebate", is offered only at the discretion of the Director. Like the Advantage Arkansas job creation income tax credit, the payroll rebate is based on the payroll of new full-time permanent employees.

The date of the financial incentive agreement is the beginning date in determining when the payroll threshold must be met. Only the payroll of those employees hired after the date of the financial incentive agreement is eligible for the rebate (except as provided in Section II (15)). A minimum payroll of two million dollars ($2 million), (payroll threshold) for new full-time permanent employees is required in order to qualify for this incentive.

The payroll rebate for the tax year in which new employees qualify will be based on the payroll paid to each new full-time permanent employee from their hire date to the end of the tax year. In order to be counted as a new full-time permanent employee during any tax year, the employee must have worked a minimum of twenty-six (26) consecutive weeks with an average of at least thirty (30) hours per week. The payroll threshold of the new full-time permanent employees must be met by the business within twenty-four (24) months following the date the financial incentive agreement was signed (except as provided in Section V (1).

The incentive payment amount shall be subject to the terms provided in the financial incentive agreement and may be reduced based upon the audited performance of the eligible business.

It is the responsibility of the qualified business to file the Create Rebate Program New Full Time Permanent Employee Payroll Certification with the Department of Finance and Administration (DF&

A) when the requisite two million dollars ($2 million) payroll threshold has been attained. This certification provides the number of new full-time permanent employees hired, together with the dollar amount of their payroll. Thereafter, the Company shall recertify the number of new full-time permanent employees and payroll amounts annually at the end of each tax year. The certification to DF& A is the mechanism to initiate the verification audit. Therefore, the company must certify annually at the end each tax year to DF&A.

Pursuant to Act 625 of 2009 for financial incentive agreements with an effective date on or after July 31, 2009, failure of the company to certify and recertify payroll amounts annually to the Department of Finance and Administration will result in the Department of Finance and Administration reducing the amount of rebate earned by ten percent (10%) if not claimed within twelve (12) months from the end of the tax year in which the rebate was earned; or a one hundred percent (100%) forfeiture of the earned rebate if not claimed within twenty-four (24) months from the end of the tax year in which the rebate was earned. The offering of this incentive is intended to provide benefits to companies locating or expanding in Arkansas. In the event the approved company ceases the operations of the facility for which the incentives are offered, the incentive agreement will be terminated and any benefits accrued and not claimed as of the date of closure will be forfeited.

The payroll rebate (Create Rebate) benefit can only be authorized at the discretion of the Director in the form of a written proposal and may be offered for up to ten (10) years. The term of the agreement depends on the benefit to the state as determined by a cost-benefit analysis performed by the Commission. If the proposal is accepted by the company, a financial incentive agreement is signed by the Commission and the company. The provisions of the financial incentive agreement will be based upon the eligible businesses' proposed job creation and average hourly wage information provided in the written proposal from the Director. With the exception of targeted businesses, the benefit allowed is dependent upon the tier in which the business locates as follows:

(1) Tier 1 Counties - An incentive payment equal to 3.9% of the payroll of the new full-time permanent employees for the term of the agreement;

(2) Tier 2 Counties - An incentive payment equal to 4.25% of the payroll of the new full-time permanent employees for the term of the agreement;

(3) Tier 3 Counties - An incentive payment equal to 4.5% of the payroll of the new full-time permanent employees for the term of the agreement; and

(4) Tier 4 Counties - An incentive payment equal to 5.0% of the payroll of the new full-time permanent employees for the term of the agreement.

(5) At the discretion of the Director, an eligible business located in a tier 1, 2 or 3 county may be authorized to receive an increased benefit, up to 5.0%, of the payroll of the new full-time permanent employees if the following conditions are met:

(i) The business is considering a location in another state;

(ii) The business derives at least 75% of its sales from out of state; and

(iii) The business proposes to pay wages in excess of 100% of the county average wage of the county in which it locates.

(6) The benefits provided by this section shall be calculated based upon the provisions of the financial incentive agreement. The financial incentive agreement may contain language that will adjust the benefit based upon the audited performance of the eligible business.

Payroll Rebate for Targeted Businesses:

The payroll rebate incentive payment for targeted businesses is equal to five percent (5%) of the payroll of the new full time permanent employees for a period not to exceed ten (10) years provided that the following conditions are met:

(i) The average hourly wage of the new full-time permanent employees must be at least one hundred seventy-five percent (175%) of the state or county average hourly wage, whichever is less, and

(ii) The payroll of the new full-time permanent employees exceed two hundred fifty thousand dollars ($250,000).

The payroll rebate for targeted businesses may not be used in conjunction with the income tax credit provided in Section D of these rules and regulations.

Example: An eligible business plans on locating in a Tier 2 county and plans to hire 65 employees at an average wage of $19 per hour. In Tier 2 a payroll rebate of 4.25% of payroll of new full-time permanent employees may be granted. A minimum annual payroll of $2 million is required to qualify for this incentive. In this example, the Director agrees to award the payroll rebate for a period of three (3) years. ($19 per hour X 2080 = $39,520 per employee X 65 jobs = $2,568,800 annual payroll X 4.25% = $109,174 payroll rebate for each of the next three years.) This example assumes that all 65 new full-time permanent employees were hired at the beginning of the first year and worked forty (40) hours per week.

Notes: Benefit calculations could change given any of the following circumstances:

* The business decided to locate in another tier;

* The Director awards a shorter or longer term for the benefit;

* The payroll increases due to either raises being given or new employees added to the payroll;

* The payroll decreases (if the payroll falls below the $2 million threshold for qualification, the business may request an extension of up to 24 months to regain the payroll threshold; and

* If the business fails to regain the payroll threshold amount, the business shall be liable for repayment of all benefits previously received.

Combination with other incentives: The payroll rebate (Create Rebate) incentive authorized in § 15-4-2707, if offered by the Director, may be combined with:

* Either the retention investment incentive (InvestArk) authorized by § 15-4- 2706(c) or the sales and use tax refund incentive (Tax Back) authorized by § 15-4-2706(d), the approved business would choose between these two, but cannot take both;

* The ArkPlus investment incentive authorized by § 15-4-2706(b), if approved by the Director;

* The research and development income tax incentive for university based research authorized by § 15-4-2708(a); and

* The research and development income tax incentive for in-house research authorized by § 15-4-2708(b).

C. Investment Incentives

1. Retention Sales and Use Tax Credit (InvestArk) - Act 182 of 2003 § 15-4- 2706(c).

The qualifications and benefits for this incentive are the same in all four tiers. In order to qualify, a business must:

1) Have been in continuous operation in the state for at least two (2) years;

2) Invest a minimum of five million dollars ($5,000,000) in a project (including land, buildings and equipment); and

3) Hold a direct-pay sales and use tax permit from the Arkansas Department of Finance and Administration.

In order to obtain benefits under the InvestArk program, a business must apply to the Commission, using forms provided by the Commission, and be approved based on the qualifications submitted in the application and the accompanying project plan. With the exception of preconstruction costs, only those costs incurred after the Commission's approval are eligible in calculating the benefit of this program.

The project plan shall clearly identify the scope of the project, the time frame in which the project is to be started and completed and a complete listing of estimated project expenditures. All project costs must be incurred within four (4) years from the date the project is approved by the Commission. However, a qualified business that enters into a lease for building or equipment for a period in excess of five (5) years may count the lease payments for the first five (5) years of the lease agreement as qualifying expenditures. The first five (5) years of qualified lease payments should be claimed in the expenditure year in which the lease is signed.

The project plan may be revised by written amendment filed with the Commission. The Commission's approval of an amendment will not extend the time period in which project costs may be incurred. Amendments that exceed 25% of the original project plan's estimated cost will not be considered and shall be submitted as a new project.

The benefit of the InvestArk program is a sales and use tax credit based on a percentage of qualified expenditures. The percentage used to determine the amount of sales and use tax credits earned is one-half of one percent (0.5%) above the state sales and use tax rate in effect at the time the financial incentive agreement is signed with the Commission.

The credit may be applied against the business' direct-pay state sales and use tax liability in the year following the year of expenditure. Any unused credits may be carried forward for a period of up to five (5) years. In any year, tax credits taken under this program cannot exceed 50% of the business' sales and use tax liability on taxable purchases.

Once a business has qualified for the benefits of the InvestArk incentive, the Commission will notify the Arkansas Department of Finance and Administration that the project has been approved and will transmit the documents upon which the qualification was based.

The Commission's approval of any application is for content only. It does not constitute approval of all items listed on the application or the project plan. These items will be reviewed and either approved or ruled ineligible by an audit by the Revenue Division of the Department of Finance and Administration (DF&A).

DF&A is authorized to conduct an audit to determine eligibility of reported project expenditures. The audit may be conducted after credits have been issued and used. If expenditures upon which credits have been issued are determined to be ineligible, the amount of credit will be adjusted, which may result in the repayment of all taxes.

It is the responsibility of the qualified business to file a Annual Project Expenditure Report (Form InvestArk 2000) annually at the end of each calendar year with the Department of Finance and Administration to report the eligible project expenditures incurred during the preceding calendar year. Upon determining the amount of credit earned during that calendar year, the Department of Finance and Administration shall issue a memorandum of credit to the qualified business. The issuance of the credit does not imply the eligibility of the expenditures, which are subject to audit at a later date.

Example: A manufacturing firm is adding a new product line and will require additional space as well as new processing equipment. The total cost of the project, with land, building and equipment, totals $7,754,000. The business has been in operation for over 15 years in Arkansas, meeting the two-year residency requirement of this incentive. After being approved by and signing a financial incentive agreement with the Commission, the manufacturing firm is eligible for a sales and use tax credit of 6.5% (one-half a percent over the rate of 6.0% as of July 1, 2007). At the end of each calendar year, until project completion, the business shall certify to the Department of Finance and Administration the amount of project expenditures incurred during the previous calendar year and shall be granted a sales and use tax credit. If the business had spent $7,754,000 in eligible expenditures in the previous calendar year, the total sales and use tax credit based upon a sales tax rate of 6.0% ($7,754,000 X 6.5%) would be $504,010, which could be used the following year and any unused credit could be carried forward for an additional five years. In any year, the amount of the sales and use tax credit used cannot exceed 50% of the business' sales and use tax liability on taxable purchases.

Notes: The benefit calculations above could change given any of the following circumstances:

* The sales tax rate was increased or decreased prior to the signing of a financial incentive agreement with the Commission. Once a business has signed a financial incentive agreement with the Commission, the sales tax rate and benefit will be "locked in" regardless of any subsequent change to the sales tax rate during the term of the project.

* The project fails to reach the minimum investment threshold of $5 million. Should benefits be received for project expenditures and the threshold expenditure of $5 million not be met, the recapture provisions of Section V of these regulations may be invoked by the Department of Finance and Administration.

Combination with other incentives: The retention tax credit (InvestArk) authorized in § 15-4-2706(c) may be combined with:

* The job creation tax credit (Advantage Arkansas) as authorized in § 15-4- 2705;

* The payroll rebate (Create Rebate), if offered by the Director, as authorized in § 15-4-2707;

* The research and development income tax incentive for university based research authorized by § 15-4-2708(a); and

* The research and development income tax incentive for in-house research authorized by § 15-4-2708(b).

2. Investment Income Tax Credit (ArkPlus)- Act 182 of 2003 § 15-4-2706(b).

This incentive is awarded only at the discretion of the Director. In order to qualify, the business must meet both the investment and payroll thresholds for the tier in which it locates.

The benefit is an income tax credit equal to ten percent (10%) of the investment in land, buildings, equipment and costs relating to licensing and protecting intellectual property (which would include license fees, patent fees and attorney fees to maintain or enhance the patent's or trademark's application). The benefit is the same regardless of the tier in which the business locates.

The business must reach the investment threshold for the tier in which it is located within four (4) years from the date of the signing of the financial incentive agreement. All project costs must be incurred within four (4) years from the date the project is approved by the Commission however a qualified business that enters into a lease for building or equipment for a period in excess of five (5) years may count the lease payments for the first five (5) years of the lease agreement as qualifying expenditures. The first five (5) years of qualified lease payments should be claimed in the expenditure year in which the lease is signed.

It is the responsibility of the qualified business to file a ArkPlus Program Annual Incentive Plan Expenditure Report (Form ArkPlus 2000) and a ArkPlus Program New Full Time Permanent Employee Payroll Certification with the Department of Finance and Administration (DF&

A) when the investment threshold is met. This certification provides the amount of eligible project cost incurred in the previous tax year as well as the number of new full-time permanent employees hired, together with the dollar amount of their payroll. Thereafter, the Company shall recertify eligible project costs and the number of new full-time permanent employees and payroll amounts annually at the end of each tax year. The certification to DF&A is the mechanism to initiate the verification audit.

The income tax credit earned cannot be used to offset more than 50% of the business' income tax liability in any one tax year. Any unused credits can be carried forward for nine (9) years beyond the year in which they were earned or until exhausted, whichever occurs first.

In order to qualify for this incentive, the business must meet the investment and payroll threshold for the tier in which the business locates or expands:

(1) Tier 1 - The business must invest at least five million dollars ($5,000,000) and have an annual payroll of new full-time permanent employees of at least two million dollars ($2,000,000);

(2) Tier 2 - The business must invest at least three million seven hundred fifty thousand dollars ($3,750,000) and have an annual payroll of new full-time permanent employees of at least one million five hundred thousand dollars ($1,500,000);

(3) Tier 3 - The business must invest at least three million dollars ($3,000,000) and have an annual payroll of new full-time permanent employees of at least one million two hundred thousand dollars ($1,200,000); or

(4) Tier 4 - The business must invest at least two million dollars ($2,000,000) and have an annual payroll of new full-time permanent employees of at least eight hundred thousand dollars ($800,000).

Example: A new eligible business plans to begin operations in a Tier 4 county. It plans on hiring 50 new full-time permanent employees at an average wage of $15 per hour. ($15/hr. X 2080 hours = $31,200 avg. annual salary X 50 employees = $1,560,000 annual payroll) It will invest $3,500,000 in land, buildings and equipment for the new operation. The $1,560,000 annual payroll exceeds the $800,000 payroll threshold for a Tier 4 county and the capital investment of $3.5 million exceeds the $2 million investment threshold allowing the business to meet minimum qualifications for the incentive. Should the Director approve the business' application for this incentive program, and should the business spend precisely $3.5 million, it would earn an income tax credit of $350,000 that could be carried forward for nine years beyond the year it was first earned. This example assumes all new full-time permanent employees were hired at the beginning of the first year and work forty (40) hours per week.

Notes: The benefit calculation noted above could change given any of the following circumstances:

* The business fails to reach either the investment or payroll threshold required to receive the benefit of this incentive program.

* Failure to meet investment or payroll requirements could necessitate the implementation of recapture provisions provided for in Section V of these regulations.

Combination with other incentives: The investment income tax credit authorized by § 15-4-2706(b), if approved by the Director, may be combined with:

* The payroll rebate (Create Rebate) authorized by § 15-4-2707, if approved by the Director;

* The research and development income tax incentive for university based research authorized by § 15-4-2708(a); and

* The research and development income tax incentive for in-house research authorized by § 15-4-2708(b).

2A. Technology-based enterprises Investment Income Tax and Sales and Use Tax Credit (Targeted ArkPlus) - Act 182 of 2003 § 15-4-2706(b)

At the discretion of the Director, a targeted business may earn an income tax credit or a sales and use tax credit based upon new investment. The targeted business must:

A. Invest a minimum of two hundred fifty thousand dollars ($250,000) within four (4) years of the effective date of the financial incentive agreement;

B. Create a new payroll of at least two hundred fifty thousand dollars ($250,000); and

C. Pay wages that are at least one hundred seventy-five percent (175%) of the state or county average hourly wage, whichever is less.

The credit earned by the targeted business shall be based upon a percentage of the investment as follows:

1. The credit amount shall be two percent (2%) of investments from two hundred fifty thousand dollars ($250,000) up to five hundred thousand dollars ($500,000);

2. The credit amount shall be two percent (2%) of the investment up to five hundred thousand dollars ($500,000) plus four percent (4%) of the investment in excess of five hundred thousand dollars ($500,000) up to one million dollars ($1,000,000);

3. The credit amount shall be two percent (2%) of the investment up to five hundred thousand dollars ($500,000) plus four percent (4%) of the investment in excess of five hundred thousand dollars ($500,000) up to one million dollars ($1,000,000) plus six percent (6%) of the investment in excess of one million dollars ($1,000,000) up to two million dollars ($2,000,000) and

4. The credit amount shall be two percent (2%) of the investment up to five hundred thousand dollars ($500,000) plus four percent (4%) of the investment in excess of five hundred thousand dollars ($500,000) up to one million dollars ($1,000,000) plus six percent (6%) of the investment in excess of one million dollars ($1,000,000) up to two million dollars ($2,000,000) plus eight percent (8%) of the investment in excess of two million dollars ($2,000,000).

Prior to the execution of the financial incentive agreement, the targeted business must elect to receive the tax credits as sales and use tax credits or income tax credits.

The percentage of the targeted business' tax liability that may be offset is determined by the average hourly wage paid to the new full time permanent employees as follows:

A. A targeted business that pays at least one-hundred seventy-five percent (175%) of the state or county average hourly wage, whichever is less, may offset fifty percent (50%) of it's tax liability.

B. A targeted business that pays at least two hundred percent (200%) of the state or county average hourly wage, whichever is less, may offset seventy-five percent (75%) of it's tax liability.

C. A targeted business that pays at least two hundred twenty-five percent (225%) of the state or county average hourly wage, whichever is less, may offset one hundred percent (100%) of it's tax liability.

The approved targeted business must certify eligible project expenditures annually with the Department of Finance and Administration. Upon verification of eligibility, the Department of Finance and Administration shall issue the credit according to the tax type specified in the financial incentive agreement.

The income tax credit may be applied against the approved company's Arkansas income tax liability. Any unused credit may be carried forward for a period not to exceed nine (9) tax years after the tax year in which it was first earned.

The sales and use tax credit may be applied against the company's State sales and use tax liability as reported on its monthly sales and use tax report in the calendar year following the calendar year of expenditure.

The tax liability reported on the company's monthly sales and use tax that may be offset by the credit may be derived from:

a. Sales made by the approved company and collected from the customer;

b. Use taxes accrued by the company for out-of state purchases;

c. Sales and Use taxes accrued and reported on the company's monthly direct-pay report.

The credit may not be applied against any taxes collected from the company by the seller. Any unused credit may be carried forward for a period not to exceed nine (9) calendar years after the calendar year in which it was first earned.

3. Sales and Use Tax Refund for New and Expanding Eligible Businesses (Tax Back) - Act 182 of 2003 § 15-4-2706(d).

This incentive program is available to all eligible businesses that meet the qualifications for investment and payroll thresholds for the tier in which it locates or expands and are approved for benefits by the Commission. The Commission's approval is contingent upon receipt of a completed application and a local endorsement resolution from the city, county or both which authorizes the refund of its local taxes to the eligible company.

To qualify, the eligible business must invest in excess of one hundred thousand dollars ($100,000) and meet the eligibility criteria of the Advantage Arkansas (§ 15- 4-2705), or Create Rebate, (§ 15-4-2707), job creation incentive programs.

The financial incentive agreement for the job creation tax credit (Advantage Arkansas) or payroll rebate (Create Rebate) must be signed within 24 months of signing a financial incentive agreement for a sales and use tax refund unless the eligible business has met the requirements of a job creation financial incentive agreement under § 15-4-2705 or § 15-4-2707 within the previous forty-eight months.

In the event an eligible business has an existing Tax Back agreement, the business may apply for additional Tax Back if it has signed a job creation financial incentive agreement under § 15-4-2705 or § 15-4-2707 within the previous forty-eight (48) months.

In the event the business does not have an existing Tax Back agreement, the business may apply for Tax Back benefits if it has signed a job creation financial incentive agreement under § 15-4-2705 or § 15-4-2707 within the previous forty- eight (48) months.

An application, accompanied by local endorsement resolution must be filed with the Commission. The application should clearly identify the intent of the project, the expenditures planned, the start and end date of the project and an estimate of total project costs. The local endorsement resolution from the governing authority (city council, quorum court or both) in which the project is located must authorize the refund of its local sales and use taxes.

The purpose of the resolution is to:

A) approve the specific entity's participation in the program; and

B) specify that the municipality or county authorizes the Department of Finance and Administration to refund all or part of any sales and use tax levied at the local level. The municipality or county in which the eligible business is located may authorize the refund of any sales or use tax levied by it but may not authorize the refund of any sales and use tax not levied by it.

This incentive program grants a refund of state and local sales and use taxes paid on the purchases of the material used in the construction of a building or buildings or any addition, modernization or improvement to a new or expanding eligible business. A sales and use tax refund is also allowed for the purchases of taxable machinery or equipment associated with the building or project.

A refund shall not be authorized for:

A) routine operating expenditures;

B) the purchase of replacements of items previously purchased as part of a project unless the items previously purchased will not enable the project to function as originally intended;

C) licensed motor vehicles; or

D) expenditures for routine repair and maintenance that do not result in new construction or expansion.

For projects approved on or after July 1, 2005 the refund of state sales and use taxes shall not include the refund of taxes dedicated to the Educational Adequacy Fund provided in § 19-5-1227 or the taxes dedicated to the Conservation Tax Fund provided in § 19-6-484.

All project costs must be incurred within four (4) years from the date the project is approved by the Commission. The project plan may be revised by written amendment filed with the Commission. The Commission's approval of an amendment will not extend the time period in which project costs may be incurred. Amendments that exceed 25% of the original project plan's estimated cost will not be considered and shall be submitted as a new project.

Eligible Businesses Tax Back Refunds

In order for an eligible business to receive a refund, the business must file an Annual Sales and Use Tax Refund Request Form (Form Tax Back 1000) and schedules (Schedule A) listing the qualified purchases at the end of each calendar year.

An approved eligible business may receive a sales and use tax refund on eligible purchases made by a contractor or developer performing work, or building a structure for lease or sale to the approved eligible business provided the eligible business submits to the Department of Finance and Administration, Tax Credits/Special Refunds Section a notarized Contractor's/Developer's Waiver of Refund Form (Form Tax Back 1100) completed by the contractor or developer waiving any and all rights to claim a refund of sales and use taxes.

An approved business is prohibited from claiming a refund for the same amount of local tax that:

(1) The approved business has received, or will be receiving, for a local tax cap rebate on qualifying Tax Back purchases, either on the approved business' Sales and Use Tax Report or as a refund from the Sales and Use Tax Section; or

(2) The contractor or developer has received, or will be receiving, a local tax cap rebate on qualifying Tax Back purchases, either on the contractor's or developer's Sales and Use Tax Report or as a refund from the Sales and Use Tax Section.

Example: An eligible business approved for the Tax Back program makes a purchase of eligible items on an invoice totaling $10,000. Assuming a local tax rate of 1%, the total local tax due is $100. The local tax cap for business purposes is limited to the tax due on $2,500. If the business claims a local tax cap rebate for the $75 (the tax paid in excess of the tax due on $2,500) on its Sales and Use Tax Report or as a refund from the Sales and Use Tax Section; the business' Tax Back refund is limited to $25 for this invoice. If the business has not claimed, or does not plan to claim, the local tax cap rebate, it may claim the full amount of local tax paid on its Tax Back Sales and Use tax refund request.

Refunds to Developers/Contractors

Developers building a structure for lease to an approved eligible business and contractors performing work for an approved eligible business may be permitted to receive a sales and use tax refund on eligible purchases directly from the state only when the approved eligible business requests the Department of Finance and Administration, Tax Credits/Special Refunds Section, in writing, that this be permitted and states the basis for this request. This request must be approved by DFA prior to the signing of the financial incentive agreement.

The Department of Finance and Administration, Revenue Division, will authorize this procedure only when it is satisfied that:

(1) The written request sufficiently states the basis for this request and provides a satisfactory explanation why this arrangement is crucial to the success of the project;

(2) All requirements of the Consolidated Incentive Act of 2003 and AEDC rules will be adhered to;

(3) A notarized affidavit (Form Tax Back 1400) is presented to the Department of Finance and Administration, Revenue Division, from the contractor or developer stating the eligible business will receive the benefit of the sales and use tax refunds by having the cost of construction or lease payments reduced by the amount of the tax refund; and

(4) A notarized affidavit (Form Tax Back 1300) is presented to the Department of Finance and Administration, Revenue Division, from the approved eligible business waiving the right to claim a refund of sales and use taxes, and passing on the right to claim refunds to the contractor or developer. The affidavit must state that the eligible business acknowledges that if the eligible business fails to comply with the conditions contained in the Act or this regulation, that the business will be liable for the payment of all sales and use taxes which were refunded to the contractors and developers under this Act, plus interest.

(5) The eligible business' incentive agreement with AEDC must include a provision for recapture of the sales and use tax refunds from the contractor or developer if the eligible business closes and ceases operations within a short period.

If a developer or contractor has been authorized by the Department of Finance and Administration to receive the refund, the developer or contractor must file an Annual Sales and Use Tax Refund Request by Developer Form (Form Tax Back 1200) and schedules (Schedule A) listing the qualified purchases.

A developer or contractor is prohibited from claiming the same amount of local tax that it has received, or will be receiving, for a local tax cap rebate on qualifying Tax Back purchases, either on its Sales and Use Tax Report or as a refund from the Sales and Use Tax Section.

Example: A developer or contractor makes a purchase of eligible items on an invoice totaling $10,000. Assuming a local tax rate of 1%, the total local tax due is $100. The local tax cap for business purposes is limited to the tax due on $2,500. If the developer or contractor claims a local tax cap rebate for the $75 (the tax paid in excess of the tax due on $2,500) on its Sales and Use Tax Report or as a refund from the Sales and Use Tax Section; it's Tax Back refund is limited to $25 for this invoice. If the contractor or developer has not claimed, or does not plan to claim, the local tax cap rebate, it may claim the full amount of local tax paid on its Tax Back Sales and Use tax refund request.

Filing Requirements

It is the responsibility of the eligible business to file a Annual Sales and Use Tax Refund Request Form (Tax Back 1000) and supporting schedules (Schedule A) with the Department of Finance and Administration at the end of each calendar year.

Upon determining the amount of eligible refund, the Department of Finance and Administration shall issue a refund to the eligible business.

All claims for sales and use tax refunds under this incentive program must be filed within three (3) years from the date of the qualified purchase or purchases or those claims will be denied.

Example: A relatively new eligible business is planning to expand its operations in a Tier 3 county. The business plans to hire seven new full-time permanent employees at $12 per hour. ($12/hr. X 2080 hours = $24,960 average annual wage X 7 new employees = $174,720 annual payroll). The business would meet the payroll threshold for a Tier 3 county. The business will renovate an existing building in the community and will spend approximately $125,000 in renovation costs. This investment is above the threshold required. The sales tax paid on all renovation costs subject to the sales tax is eligible to be refunded at the sales or use tax rate in effect at the time of the purchase, excluding the taxes dedicated to the Educational Adequacy Fund and the Conservation Tax Fund. The eligible business must file for the sales or use tax refund within three years of purchase or the claim will be denied. This example assumes all new full-time permanent employees are hired at the beginning of the first year and work forty (40) hours per week.

Notes: The refund of sales and use tax for eligible businesses is dependent upon the following conditions:

* The refund is made contingent upon the signing of a financial incentive agreement for a jobs creation incentive (Advantage Arkansas, or Create Rebate) within 24 months of signing a financial incentive agreement for a sales and use tax refund for new and expanding eligible businesses;

* The items purchased being subject to the sales or use tax;

* The payroll threshold under the Advantage Arkansas or Create Rebate job creation financial incentive agreements being met within twenty-four (24) months of the signing of the financial incentive agreement; and

* The documentation of the minimum investment ($100,000) needed to qualify for the sales and use tax refund.

Combination with other incentives: The sales and use tax refund for new and expanding eligible businesses, authorized by § 15-4-2706(d), may be combined with:

* Advantage Arkansas as authorized by § 15-4-2705 or Create Rebate as authorized by § 15-4-2707, if approved by the Director; and

* The research and development income tax credit for university based research authorized by § 15-4-2708(a); and

* The research and development income tax incentive for in-house research authorized by § 15-4-2708(b).

4. Sales and Use Tax Refund for Targeted Businesses- Act 182 of 2003 § 15-4- 2706(e)(1)

This incentive program extends the benefits of the Tax Back sales and use tax refund program to a category of new and expanding eligible businesses referred to as "targeted businesses". This incentive is a discretionary incentive and is offered only at the discretion of the Director. Targeted businesses are found within six growing business sectors that include:

(i) Advanced materials and manufacturing systems, with emphases on the following:

(a) Photonics;

(b) Nanotechnology;

(c) Electronics manufacturing;

(d) Environmental issues related to material and manufacturing;

(e) Photovoltaics; and

(f) Energy efficient storage devices.

(ii) Agriculture, food and environmental sciences, with emphases on the following:

(a) Rice;

(b) Poultry;

(c) Aquaculture;

(d) Toxicology;

(e) Agricultural medicine;

(f) Forestry;

(g) Nutrition;

(h) Waste minimization;

(i) Energy reduction;

(j) Distributed energy generation; and

(k) Spatial technology.

(iii) Biotechnology, bioengineering and life sciences, with emphases on the following:

(a) Genetics;

(b) Oncology;

(c) Geriatrics;

(d) Neuroscience;

(e) Medical devices;

(f) Rehabilitation;

(g) Biopharmaceuticals and drug discovery;

(h) Protein structure and function;

(i) Cell molecular biology; and

(j) Sensor technology.

(iv) Information technology, with emphases on the following:

(a) Knowledge and data engineering;

(b) Database systems;

(c) Distributed systems;

(d) Wireless systems;

(e) Software development; and

(f) State of the art applications of information technology to :

(1) Bioinformatics, and

(2) Healthcare.

(v) Transportation logistics, with emphases on the following:

(a) Intelligent material handling;

(b) Automated systems; and

(c) Transportation management systems.

(vi) Bio-based products, with emphases on the following:

(a) Biodiesel;

(b) Ethanol;

(c) Methanol;

(d) Synthetic transportation fuels;

(e) Adhesives;

(f) Polymers;

(g) Automotive components; and

(h) Engineered products from non-traditional biomass sources.

To qualify as a targeted business, the Commission must determine that the business falls within one of the six categories noted above, the business must have been in operation for five years or less and must pay, at minimum, 150% of the lesser of the state or county average wage. In addition, the targeted business must have an annual payroll of at least one hundred thousand dollars ($100,000) and demonstrate evidence of an equity investment in the targeted business of at least two hundred fifty thousand dollars ($250,000). A targeted business with an annual payroll in excess of one million dollars ($1,000,000) will not qualify for the targeted business sales and use tax refund, but may be eligible for other incentives offered through the Consolidated Incentive Act of 2003 (Act 182 of 2003).

In addition to meeting the targeted business eligibility requirements, the business must invest in excess of one hundred thousand dollars ($100,000) and meet the eligibility criteria of the Targeted Business payroll income tax credit incentive program (§ 15-4-2709). A signed financial incentive agreement for targeted payroll income tax credits must be signed within 24 months of signing a financial incentive agreement for a sales and use tax refund.

An application accompanied by a local endorsement resolution must be filed with the Commission. The application should clearly identify the intent of the project, the expenditures planned, the start and end date of the project and an estimate of the total project costs. The local endorsement resolution from the governing authority (city council, quorum court or both) in which the project is located must authorize the refund of its local sales and use taxes.

The purpose of the resolution is to:

A) approve the specific entity's participation in the program; and

B) specify that the municipality or county authorizes the Department of Finance and Administration to refund all or part of any sales and use tax levied at the local level. The municipality or county in which the eligible business is located may authorize the refund of any sales or use tax levied by it but may not authorize the refund of any sales and use taxes not levied by it.

This incentive program grants a refund of state and local sales and use taxes paid on the purchases of the material used in the construction of a building or buildings or any addition, modernization or improvement to a new or expanding eligible business. A sales and use tax refund is also allowed for the purchases of taxable machinery or equipment associated with the building or project.

A refund shall not be authorized for:

A) routine operating expenditures;

B) the purchase of replacements of items previously purchased as part of a project unless the items previously purchased will not enable the project to function as originally intended;

C) licensed motor vehicles; or

D) expenditures for routine repair and maintenance that do not result in new construction or expansion.

For projects approved on or after July 1, 2005 the refund of state sales and use taxes shall not include the refund of taxes dedicated to the Educational Adequacy Fund provided in § 19-5-1227 or the taxes dedicated to the Conservation Tax Fund provided in § 19-6-484.

All project costs must be incurred within four (4) years from the date the project is approved by the Commission. The project plan may be revised by written amendment filed with the Commission. The Commission's approval of an amendment will not extend the time period in which project costs may be incurred. Amendments that exceed 25% of the original project plan's estimated cost will not be considered and shall be submitted as a new project.

It is the responsibility of the qualified targeted business to file a Targeted Business Tax Back Program Annual Sales and Use Tax Refund Request (Form Target 1000) annually at the end of each calendar year to the Department of Finance and Administration to request a refund of sales and use taxes paid on eligible project expenditures incurred during the preceding calendar year. Upon determining the amount of the eligible refund, the Department of Finance and Administration shall issue a refund to the qualified business.

All claims for sales and use tax refunds under this incentive program must be filed within three (3) years from the date of the qualified purchase or purchases or those claims will be denied.

Example: A new start-up computer software design firm is beginning business. It has received an equity investment from a venture capital firm in the amount of $750,000 to help it get started. It plans on hiring six new full-time permanent employees at an average hourly wage of $28 per hour. The average hourly wage for the tier 1 county in which the business plans to locate is $15 per hour. ($15/hr. X 150% = $22.50 per hour) The business' average hourly wage of $28 per hour is above the threshold wage to qualify in this tier 1 county. ($28/hr. X 2080 hrs. = $58,290 average annual salary X 6 employees = $349,440 annual payroll). The business' annual payroll exceeds the threshold of $100,000 so the business meets the payroll, investment and average wage requirements necessary to qualify for the sales and use tax refund. Eligibility is also dependent upon being approved by the Director of the Commission. All eligible expenditures subject to the sales or use tax may be refunded under this incentive. The eligible targeted business must file for the sales or use tax refund within three years of purchase or the claim will be denied. This example assumes all new full-time permanent employees are hired at the beginning of the first year and work forty (40) hours per week.

Notes: The refund of sales and use tax for eligible targeted businesses is dependent upon the following conditions:

* The refund is made contingent upon the signing of a financial incentive agreement for a targeted payroll income tax credit for targeted businesses incentive within 24 months of signing a financial incentive agreement for a sales and use tax refund for a targeted business;

* The items purchased being subject to the sales or use tax;

* The business meeting the average wage requirement;

* The payroll threshold being met within twenty-four (24) months of the signing of the financial incentive agreement; and

* The documentation that the targeted business has received an equity investment in excess of $250,000.

Combination with other incentives: The sales and use tax refund for targeted businesses authorized by § 15-4-2706(d) may be combined with, if approved by the Director:

* The targeted job creation income tax credit as authorized by § 15-4-2709; and

* The targeted research and development tax credit authorized by § 15-4- 2708(c).

D. Payroll income tax credit for targeted businesses - Act 182 of 2003 § 15-4- 2709

The payroll income tax credit for targeted businesses is offered to assist with the start-up of businesses in targeted sectors that pay significantly more than the state or county average wage of the county in which the business locates. This incentive is offered only at the discretion of the Director. In order to qualify for this incentive, the business must be included in one of six targeted business sectors that include:

(i) Advanced materials and manufacturing systems, with emphases on the following:

(a) Photonics;

(b) Nanotechnology;

(c) Electronics manufacturing;

(d) Environmental issues related to material and manufacturing

(e) Photovoltaics; and

(f) Energy efficient storage devices.

(ii) Agriculture, food and environmental sciences, with emphases on the following:

(a) Rice;

(b) Poultry;

(c) Aquaculture;

(d) Toxicology;

(e) Agricultural medicine;

(f) Forestry;

(g) Nutrition;

(h) Waste minimization;

(i) Energy reduction;

(j) Distributed energy generation; and

(k) Spatial technology.

(iii) Biotechnology, bioengineering and life sciences, with emphases on the following:

(a) Genetics;

(b) Oncology;

(c) Geriatrics;

(d) Neuroscience;

(e) Medical devices;

(f) Rehabilitation;

(g) Biopharmaceuticals and drug discovery;

(h) Protein structure and function;

(i) Cell molecular biology; and

(j) Sensor technology.

(iv) Information technology, with emphases on the following:

(a) Knowledge and data engineering;

(b) Database systems;

(c) Distributed systems;

(d) Wireless systems;

(e) Software development; and

(f) State of the art applications of information technology to:

(1) Bioinformatics, and

(2) Healthcare.

(v) Transportation logistics, with emphases on the following:

(a) Intelligent material handling;

(b) Automated systems; and

(c) Transportation management systems.

(vi) Bio-based products, with emphases on the following:

(a) Biodiesel;

(b) Ethanol;

(c) Methanol;

(d) Synthetic transportation fuels;

(e) Adhesives;

(f) Polymers;

(g) Automotive components; and

(h) Engineered products from non-traditional biomass sources.

The business must also have an annual payroll of not less than one hundred thousand ($100,000) or more than one million dollars ($1,000,000), show proof of an equity investment of at least two hundred fifty thousand dollars ($250,000) and pay average hourly wages in excess of 150% of the county or state average hourly wage, whichever is less.

The benefit for a targeted business is an income tax credit based on 10% of its annual payroll, with a cap of $100,000 per year in earned income tax credits for a business that qualifies and is approved for this incentive. Any unused credits can be carried forward for nine (9) years beyond the year in which they were earned or until exhausted, whichever occurs first.

The incentive may be offered for a period not to exceed five (5) years. The five- year period begins on January 1st of the year in which the financial incentive agreement is signed and may not extend beyond 60 months from that date. Unlike the other incentives, the calculation of this income tax credit may include existing employees in the calculation of payroll to qualify for this benefit. In order to claim these benefits, the targeted business must sign a financial incentive agreement with the Commission.

Income tax credits are earned in the tax year in which the new full-time permanent employees qualify after the financial incentive agreement was signed with the Commission. At the end of each tax year, during the term of the agreement, it is the responsibility of the qualified targeted business to file the Targeted Business Payroll Tax Credit Employee Annual Payroll Certification with the Department of Finance and Administration (DF& A). This certification provides the number of new permanent employees and their payroll during the preceding tax year and is the mechanism to initiate the verification audit. Therefore, the company must certify annually at the end each tax year to DF& A.

A unique feature of this incentive is the ability of the business that earns the targeted business income tax credit to sell the credits. The business must make application to the Commission for the sale of credits. Upon approval by the Commission, the business may sell earned income tax credits and the credits may only be sold one time. The Commission may assist the business in finding a buyer for the tax credits. Any sale of tax credits through this incentive will be fully documented by the Commission and that information will be transmitted to the Revenue Division of the Department of Finance and Administration.

The buyer of the tax credit shall be subject to the same provisions for carry forward of the tax credits as the business that originally earned the credits. Since one of the allowable costs under the research and development tax credits is the salary of a person performing research, a business earning payroll income tax credits for targeted businesses is prohibited from earning research and development tax credits, as authorized by § 15-4-2708 or by § 26-51-1102(b) for the same expenditure.

Example: A new biotechnology firm, which is a client of the BioVentures Incubator, is leaving the incubator to expand its business. It has received a Small Business Innovation Research (SBIR) grant of $700,000 to continue its efforts with assistance from the National Institutes of Health. Currently, the business has one employee, a former UAMS research scientist who holds the patent on the biomedical device that is to be the company's first product. The business plans on hiring four new full-time permanent employees for a total of five new full-time permanent employees. The average hourly wage of the five employees will be $45 per hour. ($45/hr. X 2080 = $93,600 avg. annual salary X 5 employees = $468,000 annual payroll) The SBIR grant allows the new company to meet the equity investment threshold and the annual payroll is well above the $200,000 minimum to qualify. The $45 per hour wage is more than the 150% requirement. The new targeted business would earn a tax credit of $46,800 which may be sold to a willing buyer. If this business were granted the payroll income tax credit for the maximum time allowable (5 years), the credit in subsequent years would be based on 10% of the annual payroll in years two through five. This example assumes all new full- time permanent employees are hired at the beginning of the first year and work forty (40) hours per week.

Notes: The calculation of the benefit for an income tax credit for new targeted businesses is dependent upon the following conditions:

* A minimum payroll of $100,000 being maintained during the term of the agreement;

* The business operations must continue in one of the six targeted areas;

* The average hourly wage threshold being maintained; and

* The business continues to operate in accordance with the qualification requirements throughout the term of the financial incentive agreement.

Combination with other incentives: The payroll income tax credit for targeted businesses authorized by § 15-4-2709 may be combined with, if approved by the Director:

* The sales and use tax refund for targeted businesses as authorized by § 15- 4-2706(e); and

* The research and development income tax credit for targeted businesses as authorized by § 15-4-2708(c).

E. Research and development income tax credits

Section E deals with incentives for research and development. The different tax credits are intended to provide incentives for university-based research, in-house research of several kinds, and research and development in start-up, technology- based enterprises. It is important for the applicant to understand the different incentives and to select the most appropriate for the eligible research and development activity. In summary:

1. The incentive for research and development with universities is intended for firms of virtually every size and stage of development, may complement in- house research, and may be combined with in-house research incentives;

2. The incentives for in-house research are intended for (a) the on-going in-house research programs of mature firms, (b) younger, "targeted" firms engaged in in-house research over limited five-year periods, and (c) emerging firms engaged in strategic research and development over limited five-year periods; generally these incentives may not be combined with one another (i.e., with other in-house research incentives), but may be combined with incentives for research with universities; 3. The incentive for research and development under programs of the Arkansas Science and Technology Authority is intended for companies in the earliest stages of development and for knowledge-based companies that require a continuing research and development program to remain competitive; generally, this incentive may not be combined with other research and development incentives.

It is the responsibility of the company to apply for research and development income tax credits offered by Act 182 of 2003 (Consolidated Incentive Act of 2003). Unless otherwise specified, the application and research and development project plan shall be the basis for the Commission's decision to approve tax credit treatment for research and development expenditures. It is the responsibility of the company to claim any research and development income tax credits that may have been earned under authority granted by Act 182 of 2003. At the discretion of the Commission, an approved application and project plan may serve as the financial incentive agreement. Claims for research and development tax credits may require the company to file with its tax return a Certificate of Tax Credit issued by the Arkansas Science and Technology Authority. The specific requirements to qualify for research and development incentives follow.

1. Research and development with universities- Act 182 of 2003 § 15-4-2708(a)

An eligible business that contracts with one or more Arkansas colleges or universities in performing research may qualify for a 33% income tax credit as authorized in § 26-51-1102(b) for qualified research expenditures. The income tax credit may be carried forward for nine years beyond the year in which the credit was earned.

In order to qualify for the income tax credit for research and development with universities, an eligible business must submit an application and project plan to the Commission. The Arkansas Science and Technology Authority will review the applications and project plans so submitted and advise the Commission on (1) the eligibility of the project plan and (2) approval of the financial incentive agreement.

To claim a credit earned through this incentive, the business shall file with its income tax return the Certificate of Tax Credit issued by the Arkansas Science and Technology Authority.

If approved, the 33% income tax credit for research and development expenditures with an Arkansas college or university will be granted regardless of the business location or other qualifications.

Example: An Arkansas seed company contracts with the Division of Agriculture at the University of Arkansas to engineer a new drought resistant soybean seed. The seed company spends $1 million with the University of Arkansas to research and develop a soybean seed with the characteristics desired by the seed company. This expenditure for this project could result in an earned income tax credit of $330,000 that could be taken over a ten-year period (the year in which it was earned, plus nine years of carry forward).

Notes: It is suggested that any business wishing to take advantage of this income tax credit first visit with the Authority's staff (501-683-4400) to help insure the success of the research and development effort. It should also be noted that this incentive is subject to the limitations established in § 26-51-1103:

* Amount of credit which may be claimed in any year is limited to 100% of tax liability;

* The credits may be used in the year earned, plus a nine-year carry forward period; and

* This incentive cannot be used with other income tax benefits for the same expenditure.

This incentive must also adhere to the documentation requirements of § 26-51- 1104:

* Must demonstrate proof of approval by the Arkansas Science and Technology Authority as a qualified research project;

* Must document expenditures with the university or college; and

* Must file copies of the two above-mentioned documents with the Department of Finance and Administration when claiming the credit.

Combination with other incentives: The income tax credit for research and development with universities authorized by § 15-4-2708(a) may be used with:

* The in-house research and development incentive as authorized by § 15-4- 2708(b), (c), and (d)(1)(A); but

* May not be used with any other incentive authorized in Act 182 of 2003 (Consolidated Incentive Act of 2003) for the same expenditures.

2. In-house research- Act 182 of 2003 § 15-4-2708(b)(1)

A. New In-House Research and Development facilities:

A new eligible business that conducts "in-house" research within a research facility that is operated by the eligible business that qualifies for federal research and development tax credits may qualify for in-house research income tax credits. The eligible business must make an application to the Commission generally describing the research to be undertaken and the estimated expenditures to be made on in-

house research. The credit allowed for approved in-house research is twenty percent (20%) of the amount spent on qualified in-house research expenditures 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.

Example:

For a new in-house 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 credit.

The amount of qualified research expenditures incurred in the third year shall be used to calculate the tax credit in the fourth year.

The amount of qualified research expenditures incurred in the fourth year shall be used to calculate the tax credit in the fifth year.

B. Existing In-House Research and Development facilities:

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 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 under § 26-51-1103.

Example:

For an existing in-house research facility, the base year amount shall be the amount of eligible research expenditures incurred in the year prior to the year in which the financial incentive agreement was signed by the Commission.

The amount of qualified research expenditures incurred in the third year shall be used to calculate the tax credit in the fourth year.

The amount of qualified research expenditures incurred in the fourth year shall be used to calculate the tax credit in the fifth year.

C. Term of the In-House Research and Development Agreement:

The term of the financial incentive agreement for in-house research and development shall be for a period not to exceed five (5) years. The financial incentive agreement may be renewed for a period not to exceed five (5) years upon the submittal of a new application and project plan.

The approved business shall certify annually at the end of each tax year, to the Commission, the amount expended on in-house research.

The income tax credit earned for in-house research and development may be used to offset one hundred percent (100%) of the eligible businesses' state income tax liability.

Any unused credit may be carried forward for a period not to exceed nine (9) years.

To claim the credit earned through this incentive, the business shall file with its return the Certificate of Tax Credit issued by the Arkansas Science and Technology Authority. The Commission will adhere to some of the federal guidelines for qualifying research for federal tax credits as a guide in determining eligibility for this state income tax credit.

Qualified research expenditures include in-house expenses for taxable wages paid, usual fringe benefits, and supplies used in the conduct of qualified research. Qualified research must satisfy all of the following tests in order to qualify:

* The activity must be undertaken for the purpose of discovering information which is technological in nature;

* The application of technological information must be intended to be useful in a new or improved business component; and

* Substantially all of the activities related to the research effort must constitute elements of a process of experimentation relating to a new or improved function, performance, reliability or quality.

The following activities are specifically excluded from the definition of qualified research:

* Any research conducted after the beginning of commercial production;

* Research adapting an existing product or process to a particular customer's need;

* Duplication of an existing product or process;

* Surveys or studies;

* Research related to certain internal-use computer software;

* Research in the social sciences, arts or humanities;

* Research funded by another person or government entity; and

* Research conducted outside of Arkansas. However, both the Director of the Commission and the President of the Arkansas Science and Technology Authority may agree to make an exception for research and development activities occurring outside of Arkansas for an agreed upon transition period if the following conditions exist:

1. The business qualifies as a Targeted Business; and

2. The Commission and the business have entered into a Targeted In- House Research and Development incentive agreement; and

3. The business is located in another state and has decided to relocate it's research and development activities to Arkansas within a specified transition period, not to exceed eighteen (18) months; and

4. The certificate of tax credit will not be issued to an out-of state business relocating to Arkansas until the business has:

a. Incorporated as a business in the State of Arkansas

b. Physically relocated to Arkansas; and

c. Is conducting research in Arkansas.

Qualified wages are the taxable wages paid to an employee for performing qualified services. Qualified services are services of employees who are:

* Engaging in qualified research, which means the actual conduct of qualified research;

* Engaging in the direct supervision of qualified research, which means the immediate supervision (first-line management) of qualified research; and

* Engaging in the direct support of research activities which constitute qualified research.

The qualified services must be in the direct support of either:

1) persons engaging in the actual conduct of qualified research; or

2) persons who are directly supervising persons engaging in the actual conduct of qualified research.

Direct support of research activities does not include general administrative services or other services only indirectly of benefit to the research activity.

Notes:

* The carry forward for this income tax credit is limited to nine (9) years beyond the year in which the credit was earned.

* Documentation must also be provided that shows that the Arkansas Science and Technology Authority has approved the research expenditures as part of a qualified research program.

* It is the intent of the Commission to adhere to some of the federal guidelines for research conducted within an eligible business.

Combination with other incentives: The in-house research income tax credit may not be combined with:

* Other in-house research and development incentives as authorized by § 15- 4-2708(c) or § 15-4-2708(d)(1)(A); or

* Any other incentive in Act 182 of 2003 (Consolidated Incentive Act of 2003) for the same expenditures.

3. In-house research by a targeted business- Act 182 of 2003 § 15-4-2708(c)

Businesses deemed by the Commission to fit within the six business sectors classified as "targeted businesses" may enter into a financial incentive agreement for income tax credits based on qualified research and development expenditures. A targeted business may be approved for an income tax credit each year equal to 33% of the qualified research and development expenditures incurred each year for the first five (5) years of the financial incentive agreement. This incentive is a discretionary incentive and is offered only at the discretion of the Director. The application for this income tax credit shall include a project plan, which clearly identifies the intent of the project, the expenditures planned, the start and end dates of the project, and an estimate of total project costs. The targeted business applying for in-house research and development income tax credits shall comply with all of the qualifications required of targeted businesses to qualify for a job creation income tax credit:

A. In operation for less than five years,

B. Annual payroll of not less than $100,000 or more than one million ($1,000,000),

C. An equity investment of at least $250,000, and

D. Pay at least one hundred fifty percent (150%) of the lesser of the county or state average wage.

The Commission will adhere to some of the federal guidelines for qualifying research for federal tax credits as a guide in determining the eligibility for this state income tax credit.

Qualified research expenditures include in-house expenses for taxable wages paid, usual fringe benefits, and supplies used in the conduct of qualified research. Qualified research must satisfy all of the following tests in order to qualify:

* Your activity must be undertaken for the purpose of discovering information which is technological in nature;

* The application of technological information must be intended to be useful in your new or improved business component; and

* Substantially all of the activities related to your research effort must constitute elements of a process of experimentation relating to a new or improved function, performance, reliability or quality.

The following activities are specifically excluded from the definition of qualified research:

* Any research conducted after the beginning of commercial production;

* Research adapting an existing product or process to a particular customer's need;

* Duplication of an existing product or process;

* Surveys or studies;

* Research related to certain internal-use computer software;

* Research in the social sciences, arts or humanities; and

* Research conducted outside of Arkansas. However, both the Director of the Commission and the President of the Arkansas Science and Technology Authority may agree to make an exception for research and development activities occurring outside of Arkansas for an agreed upon transition period if the following conditions exist:

1. The business qualifies as a Targeted Business; and

2. The Commission and the business have entered into a Targeted In- House Research and Development incentive agreement; and

3. The business is located in another state and has decided to relocate it's research and development activities to Arkansas within a specified transition period, not to exceed eighteen (18) months; and

4. The certificate of tax credit will not be issued to an out-of-state business relocating to Arkansas until the business has:

a. Incorporated as a business in the State of Arkansas

b. Physically relocated to Arkansas; and

c. Is conducting research in Arkansas.

Qualified wages are taxable wages paid to a full-time permanent employee or "contractual employee", as defined in the Act, for performing qualified services. Qualified services are services of employees who are:

* Engaging in qualified research, which means the actual conduct of qualified research;

* Engaging in the direct supervision of qualified research, which means the immediate supervision (first-line management) of qualified research; and

* Engaging in the direct support of research activities which constitute qualified research.

The qualified services must be in the direct support of either:

1) persons engaging in the actual conduct of qualified research; or

2) persons who are directly supervising persons engaging in the actual conduct of qualified research.

Direct support of research activities does not include general administrative services or other services only indirectly of benefit to the research activity.

As with the payroll income tax credits for targeted businesses, the income tax credit for research and development earned by targeted businesses may be sold.

The business must make application to the Commission for the sale of credits earned under this section within one year of issuance. Upon application and approval by the Commission, the business may sell earned income tax credits. The credits may only be sold one time. The Commission may assist the targeted business in finding a buyer for the tax credits. Any sale of tax credits through this incentive will be fully documented by the Commission and that information will be transmitted to the Revenue Division of the Arkansas Department of Finance and Administration. The same benefits accrue to a project regardless of the tier in which the business is located.

To claim a credit earned through this incentive, the business shall file with its income tax return the Certificate of Tax Credit issued by the Arkansas Science and Technology Authority.

The buyer of the tax credit shall be subject to the same provisions for carry forward of the tax credits as the business that originally earned the credits. A targeted business earning research and development tax credits is prohibited from earning job creation tax credits, as authorized by § 15-4-2709 or research tax credits as authorized by § 15-4-2708(a), for the same expenditure.

Example: A new photonics company that has recently left the Genesis Technology Business Incubator and has applied for and been approved for in-house research income tax credits as a targeted business, is in need of further research to refine a process for using lasers in space applications. It plans to spend $200,000 on an in- house research and development project that has been approved by the Arkansas Science and Technology Authority as a qualified research program. The $200,000 expenditure would be eligible for a 33% tax credit, entitling the photonics company to earn $66,000 in income tax credits in the year of the expenditure. The credits may be carried forward nine years. At the discretion of the photonics company and with the approval of the Commission, the credits may be sold within one year to allow the photonics company to realize the benefit of the credit. The purchaser of the credits would be able to carry the credit forward for nine years.

Notes:

* The carry forward for this incentive is nine (9) years beyond the year in which the credit was first earned.

* A buyer of the credit is limited to the same carry forward period. A sale of the tax credit does not alter the time frame for using the credits.

* It is the intent of the Commission to adhere to some of the federal guidelines for research conducted by an eligible targeted business.

Combination with other incentives: The income tax credit for research by a targeted business authorized by § 15-4-2708(c) may not be used with:

* Other in-house research and development incentives as authorized by § 15- 4-2708(b) or § 15-4-2708(d)(1)(A); or

* Any other incentive in Act 182 of 2003 (Consolidated Incentive Act of 2003) for the same expenditures.

4. Research area of strategic value- Act 182 of 2003 § 15-4-2708(d)

An income tax equal to 33% of qualified research expenditures may be allowed for an Arkansas taxpayer that invests in:

A. In-house research in an area of strategic value or

B. A project under the research and development programs offered by the Arkansas Science and Technology Authority and approved by its Board of Directors.

a. In-house research in an area of strategic value- Act 182 of 2003 § 15-4- 2708(d)(1)(A).

The company must apply to the Commission in order to qualify for the income tax credit for research in an area of strategic value. Research area of strategic value means research in fields having long-term economic or commercial value to the state, and that have been identified in the research and development plan approved from time to time by the Board of Directors of the Arkansas Science and Technology Authority. The tax credit for research in an area of strategic value may be earned for the first five years following the signing of a financial incentive agreement with the Commission. The income tax credit earned cannot offset more than 100% of a business' income tax liability in any one tax year and the benefits can be carried forward for nine (9) years beyond the year in which they were earned or until exhausted, whichever occurs first.

The maximum tax credit that may be claimed by a company under this program is $50,000 per tax year. The application for this income tax credit shall include a project plan, which clearly identifies the intent of the project, the expenditures planned, the start and end dates of the project, and an estimate of total project costs.

To claim a credit earned through this incentive, the company shall file the Certificate of Tax Credit issued by the Arkansas Science and Technology Authority with the tax return on which the credit is first claimed.

Qualified research expenditures for research in an area of strategic value include in-house expenses for taxable wages paid (wages subject to withholding) and supplies used in the conduct of qualified research. Qualified research must satisfy all of the following tests in order to qualify:

* Your activity must be undertaken for the purpose of discovering information which is technological in nature;

* The application of technological information must be intended to be useful in your new or improved business component; and

* Substantially all of the activities related to your research effort must constitute elements of a process of experimentation relating to a new or improved function, performance, reliability or quality.

The following activities are specifically excluded from the definition of qualified research:

* Any research conducted after the beginning of commercial production;

* Research adapting an existing product or process to a particular customer's need;

* Duplication of an existing product or process;

* Surveys or studies;

* Research related to certain internal-use computer software;

* Research in the social sciences, arts or humanities; and

* Research conducted outside of Arkansas. However, both the Director of the Commission and the President of the Arkansas Science and Technology Authority may agree to make an exception for research and development activities occurring outside of Arkansas for an agreed upon transition period if the following conditions exist:

1. The business qualifies as a Targeted Business; and

2. The Commission and the business have entered into a Targeted In-House Research and Development incentive agreement; and

3. The business is located in another state and has decided to relocate its research and development activities to Arkansas within a specified transition period, not to exceed eighteen (18) months; and

4. The certificate of tax credit will not be issued to an out-of-state business relocating to Arkansas until the business has:

a. Incorporated as a business in the State of Arkansas

b. Physically relocated to Arkansas; and

c. Is conducting research in Arkansas.

Qualified wages are taxable wages paid to a new full-time permanent employee for performing qualified services. Qualified services are services of employees who are:

* Engaging in qualified research, which means the actual conduct of qualified research;

* Engaging in the direct supervision of qualified research, which means the immediate supervision (first-line management) of qualified research; and

* Engaging in the direct support of research activities which constitute qualified research.

The qualified services must be in the direct support of either:

1) persons engaging in the actual conduct of qualified research; or

2) persons who are directly supervising persons engaging in the actual conduct of qualified research.

Direct support of research activities does not include general administrative services or other services only indirectly of benefit to the research activity.

A company claiming a credit through this incentive shall be prohibited from receiving the research tax credit authorized by § 26-51-1102(b) for the same expenditures.

Example: A defense contractor located in Arkansas has decided to conduct research in the state to improve the function of microelectronic components in advanced weapons systems. The company has been approved for this research as being "research in an area of strategic value" by the Board of Directors of the Arkansas Science and Technology Authority. The Authority's Board of Directors envisioned many non-defense applications of the proposed research and felt as though it was very complementary to other work being done in Arkansas in the field of microelectronics. The defense contractor will spend $1 million in qualified research expenditures in Arkansas in conjunction with the Authority approved program of in-house research. Assuming the entire $1 million is expended on qualified items over the five-year period at the rate of $200,000 per year, the defense contractor would generate a potential credit on the qualified annual expenditure of ($200,000 X 33% = $66,000) and earn an actual income tax credit of $50,000 per tax year, due to the limit established. The credits earned in each year may be carried forward for nine (9) years beyond the tax year in which they were first earned.

Notes:

* The carry forward for this incentive is nine (9) years beyond the year in which the credit was first earned.

* The Arkansas Science and Technology Authority must approve any research for which a business is seeking a credit under this incentive.

* It is suggested that any business wishing to take advantage of this income tax credit first visit with the Authority's staff (501-683-4400) to help insure the success of the research and development effort.

Combination with other incentives: The income tax credit for research in an area of strategic value may not be used in combination with:

* Any other research and development incentive as authorized by § 15-4- 2708; or

* Any other incentive in Act 182 of 2003 (Consolidated Incentive Act of 2003) for the same expenditures.

b. Research under programs of the Arkansas Science and Technology Authority- Act 182 of 2003 § 15-4-2708(d)(1)(B).

The company must apply to the Commission in order to qualify for the income tax credit for research under programs of the Arkansas Science and Technology Authority. The application for this income tax credit shall include a project plan, which clearly identifies the intent of the project, the expenditures planned, the start and end dates of the project, and an estimate of total project costs. The Authority specifies the application format for its programs. The tax credit may be earned for the first five years following the signing of a financial incentive agreement with the Commission. The income tax credit earned cannot offset more than 100% of a business' income tax liability in any one tax year and the benefits can be carried forward for nine (9) years beyond the tax year in which they were earned or until exhausted, whichever occurs first. The maximum tax credit that may be claimed by a company under this program is $50,000 per tax year.

To claim a credit earned through this incentive, the company shall file the Certificate of Tax Credit issued by the Arkansas Science and Technology Authority with the tax return on which the credit is first claimed.

Example: A new medical device company had only a few assets and employees and it did not qualify for any of the other research and development incentives. As a start-up company, it had been seeking outside investors in its revolutionary circulatory system implant. The company received a $3,000 technology transfer assistance grant from the Arkansas Science and Technology Authority to help the company prepare its first Small Business Innovation Research (SBIR) proposal to a federal agency. As part of its assistance to the company, the Authority's staff encouraged the company to prepare an application and project plan (which was actually the company's commercialization and business plan) for the research and development incentive under programs of the Authority. The application and project plan were approved by the Commission and became the five-year financial incentive agreement with the company. The agreement includes a timetable for commercializing the company's technology that would begin with the notice of the SBIR phase I award.

The financial incentive agreement includes a $20,000 university research project under the Authority's Applied Research Grant Program in support of the phase I SBIR effort, a $50,000 product development project under the Authority's Technology Development Program, $180,000 under the Authority's Applied Research Grant and Technology Development Programs in support of a future SBIR phase II award, and a $300,000 investment under the Authority's Seed Capital Investment Program in support of SBIR phase III. Qualification for tax credit consideration for these R& D activities is contingent on the company's performance under the federal SBIR program and decisions to fund phase I and II projects by the federal agency. It is also dependent on raising risk capital investments from individual investors who must decide that the potential benefit from sales of the implant is worth the risk.

The medical device company has been notified that it has been approved for its first SBIR award of $60,000. A local individual investor has decided, on the strength of the SBIR award and the financial incentive agreement, to become part of the company with a $100,000 investment. In the first year after the SBIR award notice, the investor put $20,000 into university research and $50,000 into product development. The Authority's Board of Directors has approved both projects. The $70,000 qualifies under the financial incentive agreement for a 33% tax credit equal to $23,100, which is under the $50,000 per year cap.

The company submitted an application for a phase II SBIR project to extend its commercialization work. Tax credits in the remaining four years will depend on decisions by the federal agency regarding the phase II application and the investor (or investors) regarding additional investments.

Notes:

* The carry forward for this incentive is nine years beyond the year in which the credit was first earned.

* The Arkansas Science and Technology Authority must approve any research for which a company is seeking a credit under this incentive.

* It is suggested that any company wishing to take advantage of this income tax credit first visit with the Authority's staff (501-683-4400) to help insure the success of the research and development effort.

Combination with other incentives: The income tax credit for research and development under programs of the Arkansas Science and Technology Authority may not be used in combination with:

* Any other research and development incentive as authorized by § 15-4-2708 or

* Any other incentive in Act 182 of 2003 (Consolidated Incentive Act of 2003) for the same expenditures.

Arkansas Tourism Development Act (Act 291 of 1997, as amended) Rules and Regulations

I. Introduction

To encourage growth in Arkansas's tourism industry, Act 291 was passed by the 81st General Assembly in 1997 and amended in 1999, 2001, 2005, 2007 and 2009. The legislation's purpose is to stimulate expansion of Arkansas's tourism industry by offering economic incentives to qualified private development projects in the form of sales and income tax credits. Since the intent is to generate additional tourist traffic to Arkansas, each proposed project must develop a marketing plan that targets 25% of its visitors from out-of-state, meet other requirements and submit a completed application prior to incurring any project costs. See Arkansas Code Annotated § 15- 11-501 et seq.

For more information, please contact:

Arkansas Economic Development Commission

Business Development Section

One Capitol Mall

Little Rock, AR 72201

(501) 682-7675

II. Definitions

A. "Agreement" means a financial incentive agreement entered into pursuant to § 15-11-506, by and between the director and an approved company, with respect to a tourism attraction project;

B. "Approved company" means any eligible company that is seeking to undertake a tourism attraction project that has been approved by the Director after obtaining the review and advice of the Director of the Department of Parks and Tourism;

C. "Approved costs" mean:

1. Obligations incurred on or after the effective date of the financial incentive agreement associated with the construction or expansion of a tourism attraction for labor and to vendors, contractors, subcontractors, builders, suppliers, delivery men, and material men in connection with the acquisition, construction, equipping, and installation of a tourism attraction project;

2. The costs of acquiring real property or rights in real property in connection with a tourism attraction project, and any costs incidental thereto;

3. The cost of contract bonds and of insurance of all kinds that may be required or necessary during the course of the acquisition, construction, equipping, and installation of a tourism attraction project which is not paid by the vendor, supplier, delivery man, contractor, or otherwise provided;

4. All costs of architectural and engineering services, including, but not limited to, estimates, plans and specifications, preliminary investigations, and supervision of construction and installation, as well as for the performance of all the duties required by or consequent to the acquisition, construction, equipping, and installation of a tourism attraction project;

5. All costs required to be paid under the terms of any contract for the acquisition, construction, equipping, and installation of a tourism attraction project;

6. All costs required for the installation of utilities in connection with a tourism attraction project, including, but not limited to, water, sewer, sewage treatment, gas, electricity, and communications, and including off-site construction of utility extensions paid for by the approved company; and

7. All other costs comparable with those described in this subsection.

8. "Approved costs" does not include:

(a) Costs incurred prior to the effective date of the financial incentive agreement, except for pre-construction costs.

(b) Expenditures for routine repair and maintenance that do not result in new construction, or expansion;

(c) Routine operating expenditures;

(d) Expenditures incurred at multiple facilities.

D. "Director" means the director of the Arkansas Economic Development Commission or the director's designated representative;

E. "Eligible company" means any corporation, limited liability company, partnership, registered limited liability partnership, sole proprietorship, or business trust, or any other entity that invests a minimum of five hundred thousand dollars ($500,000) in a high unemployment county or one million dollars ($1,000,000) in any other county for the purpose of constructing, operating or intending to operate a tourism attraction project, whether owned or leased, within the state that meets the standards promulgated by the director pursuant to § 15-11-504;

F. "Final approval" means the action taken by the director authorizing the eligible company to receive inducements under § 15-11-507 and Section 5 of Act 1135 of 1999;

G. "High unemployment" means an unemployment rate equal to or in excess of one hundred fifty percent (150%) of the state's average unemployment rate for the preceding calendar year as specified by statewide annual labor force statistics compiled by the Arkansas Department of Workforce Services, when the state's annual average unemployment rate is six percent (6%) or below. When the state's annual average unemployment rate is above six percent (6%), "high unemployment" means equal to or in excess of three percent (3%) above the state's average unemployment rate for the preceding calendar year as specified by statewide annual labor force statistics compiled by the Arkansas Department of Workforce Services.

H. "Increased state sales tax liability" means that portion of an approved company's reported state sales (gross receipts) tax liability resulting from taxable sales of goods and services to its customers at the tourism attraction for any monthly sales tax reporting period after the approved company provides the certification required by § 15-11-507(b) of Act 1135 of 1999, which exceeds the reported state sales tax liability for sales to its customers for the same month in the calendar year immediately preceding such certification. If an approved company purchases an existing tourism attraction which was selling goods and services at the time of purchase and which may or may not have been entitled to the benefits of this subchapter prior to such purchase, the "increased state sales tax liability" resulting from any investments in the tourism attraction by the new owners means that portion of the approved company's reported state sales (gross receipts) tax liability resulting from taxable sales of goods and services to its customers at the tourism attraction for any monthly sales tax reporting period after the approved company provides the certification required by § 15-11-507(b) of Act 1135 of 1999, which exceeds the reported state sales tax liability for sales made by the seller of the tourism attraction for the same month in the calendar year immediately preceding such certification. The prohibitions against disclosure of confidential tax information provided in § 26-18-301 shall not apply for purposes of computing the credit available.

I. "Inducements" means the Arkansas sales tax credit as prescribed in § 15-11-507 and/or the Arkansas income tax credit as prescribed in Section 5 of Act 1135 of 1999;

J. "Investment Threshold" means the minimum amount of eligible project costs that must be incurred in order to qualify for eligibility;

K. "New full-time permanent employee" means a position or job which was created as a result of a tourism attraction project, and which is filled by one (1) or more employees or contractual employees who were Arkansas taxpayers during the year in which the tax credits or incentives were earned or claimed. The employee or employees must work an average of at least thirty (30) hours per week.

Provided, however, in order to qualify for the provisions of this subchapter, a contractual employee must be offered a benefits package comparable to a direct employee of the business seeking incentives;

L. "Payroll" means the total taxable wages, including overtime and bonuses, paid during the preceding tax year of the approved tourism attraction to the new full- time permanent employees hired after the date of the signed financial incentive agreement;

M. "Preconstruction costs" means the cost of eligible items incurred before the start of construction, including:

1. Project planning costs;

2. Architectural and engineering fees;

3. Land;

4. Feasibility Studies;

5. Right-of-way purchases;

6. Utility extensions;

7. Site preparations;

8. Purchase of mineral rights;

9. Building demolition;

10. Builders risk insurance;

11. Capitalized start-up costs;

12. Deposits and process payments on eligible machinery and equipment; and

13. Other costs necessary to prepare for the start of construction;

N. "Tourism attraction" includes:

1. A cultural or historical site;

2. A recreational or entertainment facility;

3. An area of natural phenomenon or scenic beauty;

4. A theme park;

5. An amusement or entertainment park;

6. An indoor or outdoor play or music show;

7. Botanical gardens; and

8. Cultural or educational centers.

O. "Tourism attraction" does not include:

1. Lodging facilities, unless the facilities constitute a portion of a tourism attraction project and represent less than sixty percent (60%) of the total approved costs of the tourism attraction project, or unless the approved costs for the lodging facility exceeds five million dollars ($5,000,000) and is attached to a convention center containing seventy-five thousand (75,000) square feet or contains a minimum of twelve thousand (12,000) square feet of meeting or exhibit space;

2. Facilities that are primarily devoted to the retail sales of goods, unless the goods are created at the site of the tourism attraction project or if the sale of goods is incidental to the tourism attraction project;

3. Facilities that are not open to the general public;

4. Facilities that do not serve as a likely destination where individuals who are not residents of the state would remain overnight in commercial lodging at or near the tourism attraction project such as:

a. Movie Theaters

b. Bowling alleys

c. Fitness centers d. Miniature Golf Courses

e. Go-Kart Tracks

f. Skating Rinks

g. Night Clubs

h. Retail Stores

i. Restaurants

j. Any other establishments deemed by the Director to primarily serve the local community and in-state residents.

5. Facilities owned by the State of Arkansas or a political subdivision of the state; or

6. Facilities established for the purpose of conducting legalized gambling. However, a facility regulated under § 23-110-101 et seq. or § 23-111-101 et seq. shall be a tourism attraction for purposes of this subchapter for any approval project as outlined in subsection (j)(1) of Act 1135 of 1999 or for an approved project relating to pari-mutuel racing at the facility and not for establishing a casino or for offering casino-style gambling.

P. "Tourism attraction project" or "project" means the acquisition, including the acquisition of real estate by leasehold interest with a minimum term of ten (10) years, construction, and equipping of a tourism attraction; the construction and installation of improvements to facilities necessary or desirable for the acquisition, construction, and installation of a tourism attraction, including, but not limited to, surveys; installation of utilities, which may include, water, sewer, sewage treatment, gas, electricity, communications, and similar facilities; and off- site construction of utility extensions to the boundaries of the real estate on which the facilities are located, all of which are to be used to improve the economic situation of the approved company in a manner that shall allow the approved company to attract persons.

III. Qualifications

A. Qualifying tourism attraction projects are defined as one or more of the following:

1. Cultural or historical site

2. Recreational or entertainment facilities

3. Areas of natural phenomenon or scenic beauty

4. Theme parks

5. Amusement or entertainment parks

6. Indoor or outdoor plays or music shows

7. Botanical gardens

8. Cultural or educational center

9. A lodging facility may qualify, but only if it meets one of the following tests:

(a) It must constitute a portion of a tourism attraction project and represent less than 60% of the total approved costs of the tourism attraction project; or

(b) If the approved cost for the lodging facility exceeds $5,000,000 and one of the following is met:

(1) The lodging facility is attached to a convention center containing a minimum of 75,000 square feet, or

(2) The lodging facility contains a minimum of twelve thousand square feet of meeting or exhibit space. Proposed projects under this category must be approved by the Director prior to April 1, 2011.

B. Eligible tourism attraction projects do not have to be new construction projects. The expansion and/or purchase of existing properties may be eligible. However, the amount of sales tax credit can only be taken against the increased sales tax liability over and above the amount paid by the business being sold or expanded for the corresponding tax month of the previous year.

C. Privately owned facilities constructed on state or federal lands (via a minimum 10-year lease) may be eligible.

D. Ineligible businesses include:

1. Lodging facilities (unless it meets the tests described above);

2. Retail sales facilities (unless the goods are created on-site or if sales are incidental to the overall project);

3. Facilities not open to the general public;

4. Facilities not likely to attract overnight guests from outside the state who would stay in commercial lodging near the attraction;

5. Facilities owned by the State of Arkansas or its political subdivisions;

6. Gambling facilities (unless for approved pari-mutuel racing currently regulated under Arkansas Code)

IV. Powers and Duties of the Economic Development Commission

A. The Director or designee of the Arkansas Economic Development Commission will review each application, making certain the project proposal meets the following minimum criteria:

1. the application shall be submitted prior to incurring any project cost, other than those costs defined as pre-construction cost;

2. the project shall have a marketing plan designed to attract at least 25% of its visitors from out-of-state;

3. shall cost at least $500,000 in high-unemployment counties or $1,000,000 in any other county;

4. shall have a significant and positive impact on the State, including an analysis of whether the project will compete directly with existing tourism attractions in the state;

5. shall produce sufficient revenues and public demand to be operating and open to the public on a regular and persistent basis;

6. shall be likely to attract overnight guests from outside the state who would stay in commercial lodging near the attraction;

7. shall not adversely affect existing employment in the state;

8. and other criteria that the Director may deem to apply.

B. Once the application has been reviewed, the applicant will be notified in writing of the results of the review.

C. Upon granting approval, the Director shall enter into a financial incentive agreement with an approved company with respect to its tourism attraction project. The terms and provisions of each financial incentive agreement shall include, but shall not be limited to:

1. The amount of approved costs, determined through negotiations with the Director and applicant.

2. The eligibility date for incurring project costs.

3. A date by which the approved company shall have completed the tourism attraction project (the Completion Date), provided that the Completion Date occurs within (2) years of the date of the financial incentive agreement unless an extension is granted. Within 3 months after the Completion Date, the approved company shall document the actual cost of the project through a certification of such costs by an independent certified public accountant acceptable to the Director.

4. Provisions that the term of the financial incentive agreement may be extended for a period of two (2) years by the Director if:

(i) such extension is also approved by the Director of the Arkansas Department of Finance and Administration or

(ii) the approved company has failed to complete the project as a result of unanticipated and unavoidable construction delays or a change in business ownership.

5. In any sales tax reporting period during which a financial incentive agreement is in effect, if the increased state sales tax liability of the approved company exceeds the state sales tax credit available to the approved company, then the approved company shall pay the excess to the state as sales tax;

6. Within 45 days after the end of each calendar year, the approved company shall supply the Director with such reports and certifications as the Director may request demonstrating to the satisfaction of the Director that the approved company is in compliance with the provisions of the Act; and

7. The approved company shall not receive a credit against the Arkansas sales tax imposed by Ark. Code Ann. § 26-52-301 et seq. with respect to any calendar year if in any calendar year following the first year of the financial incentive agreement or the agreed upon completion date, the project is not operating and open to the public on a regular and persistent basis:

8. The financial incentive agreement shall not be transferable or assignable by the approved company without the written consent of the Director.

9. If the approved company utilizes sales tax credits which are subsequently disallowed, then the approved company will be liable for the payment to the Director of the Department of Finance and Administration of all taxes resulting from the disallowance of the credits plus applicable penalties and interest.

D. The Arkansas Economic Development Commission's approval of any application is for content only. It does not constitute approval of all items listed on the application or the project plan. These items will be reviewed and either approved or ruled ineligible upon an audit by the Revenue Division of the Department of Finance and Administration (DF& A).

V. Terms of the Financial Incentive Agreement

A. The following types of expenses directly related to the tourism attraction project may be included in the total approved costs that are eligible for sales tax credits:

1. Land (outright purchase or leasehold interest with 10-year minimum term);

2. Buildings at the tourism attraction site;

3. Land surveys and architectural/engineering fees;

4. Cost of contract bonds and insurance;

5. Installation of utilities paid by the approved company (including off-site extensions that are project specific);

6. Equipping of the tourist attraction; and

7. Other costs comparable to those described above can be approved on a case- by-case basis.

B. Certain approved costs defined as "pre-construction costs" will be eligible for sales tax credits regardless of the date the costs were incurred.

VI. Administration of Benefits

A. State Income Tax Credits (not eligible for lodging facilities)

1. Upon notification from the director that an approved company has entered into a tourism attraction project financial incentive agreement, the Director of the Department of Finance and Administration shall provide the approved company with such forms and instruction as are necessary to claim those credits.

2. The approved company shall certify the number and the payroll of the new full-time permanent employees to the Revenue Division of the Department of Finance and Administration.

3. Upon certification by the company, the Revenue Division of the Arkansas Department of Finance and Administration shall authorize an income tax credit equal to four percent (4%) of the payroll of the new full- time permanent employees of the approved tourism attraction project qualifying for benefits.

4. As used herein, the term "new full time permanent employee(s)" shall mean a person who (i) is an Arkansas taxpayer in the year the credits are claimed; (ii) is employed in a position or job created by virtue of the project, and (iii) has worked an average of not less than thirty (30) hours per week.

5. The income tax credits may be earned for a period of five (5) years from the effective date of the financial incentive agreement.

6. The income tax credits earned may be applied against the company's Arkansas state income tax liability for the succeeding nine (9) years or until the credit is entirely used, which ever occurs first.

7. The Director shall provide a copy of each financial incentive agreement entered into with an approved company to the Director of the Department of Finance and Administration.

B. Sales and Use Tax Credits

1. Upon receiving notification from the Director that an approved company has entered into a tourism attraction project financial incentive agreement and is entitled to the sales tax credits provided by this Act, the Director of the Department of Finance and Administration shall provide the approved company with such forms and instructions as are necessary to claim the credits.

2. An approved company shall be entitled to a sales and use tax credit upon certifying to the Director of the Department of Finance and Administration that it has met the investment threshold for the county in which it is located.

The Director of the Department of Finance and Administration shall then issue a sales tax credit memorandum for the appropriate amount (25% for projects located in high-unemployment counties and 15% for all other projects) to the approved company. Subsequent requests for credit for additional certified approved costs in excess of the investment threshold shall be submitted annually for the term of the financial incentive agreement or until the project is completed, whichever occurs first.

3. The Director of the Department of Finance and Administration may require proof of expenditures. Additional credit memorandums may be issued as the approved company certifies additional expenditures of approved costs.

4. No sales tax credit memorandum shall be issued for any approved costs expended after the expiration of two (2) years from the date the financial incentive agreement was signed by the Director and the approved company. However, the Director, with the advice and consent of the Director of the Department of Finance and Administration, may authorize sales tax credits for approved costs expended up to four (4) years from the date the financial incentive agreement was signed if the Director determines that the failure to complete the project within two (2) years resulted from:

(a) Unanticipated and unavoidable delay in the construction of the project;

(b) The project, as originally planned, will require more than two (2) years to complete; or

(c) A change in business ownership or business structure resulting from a merger or acquisition.

(1) The reasons listed above shall be brought to the attention of the Director prior to the expiration of the initial two (2) year period, and a request shall be made to the Director during the two (2) years for an extension of time.

5. The credit memorandum issued may be used to offset a portion of the reported state sales (gross receipts) tax liability of the approved company for all sales tax reporting periods following the issuance of the credit memorandum. One hundred per cent (100%) of the credit may be used to offset increased sales tax liability during the first year, with any unused credits carried forward for nine (9) additional years. The credits are also subject to the following limitations:

(a) Only increased state sales tax liability resulting from sales by the approved company may be offset by the issued credit;

(b) All issued credit memorandums shall expire at the end of the month following expiration of the financial incentive agreement;

(c) The approved company shall have no obligation to refund or otherwise return any amount of this credit to the person from whom the sales tax was collected.

(d) By April 1 of each year, the Director of the Department of Finance and Administration shall certify to the Director the state sales and income tax liability of the approved companies receiving inducements under this section, and the amount of state sales and income tax credits taken during the preceding calendar year.

(e) The Director of the Department of Finance and Administration may promulgate administrative regulations as are necessary for the proper administration of this Act. The Director of the Department of Finance and Administration may also develop such forms and instructions as are necessary for an approved company to claim the sales and income tax credits provided by this act.

(f) The Director of the Department of Finance and Administration shall have the authority to obtain any information necessary from the approved company and the Director of Economic Development to verify that approved companies have received the proper amounts of sales tax credits as authorized by this act; the Director of the Department of Finance and Administration shall demand the repayment of any credits taken in excess of the credit allowed by this act.

(g) Qualified amusement parks entering into a financial incentive agreement on or after January 1, 2006 for an approved project that will exceed one million dollars ($1,000,000) are eligible for a sales tax credit equal to twenty-five percent (25%) of the approved costs.

Qualified amusement parks entering into a financial incentive agreement on or after January 1, 2006 may use the credit to offset one hundred percent (100%) of its tax liability following the issuance of the credit.

The credit may be used to offset the qualified amusement park's sales tax liability for the Gross Receipts tax levied under the Arkansas Gross Receipts Act, § 26-52-101 seq.; and the Tourism gross receipts tax levied under § 26-52-1001 et seq. Any unused credit may be carried forward for a period on nine (9) years.

(h) The special provisions for qualified amusement parks provided in paragraph (g) above shall apply retroactively to July 1, 2006.

C. Calculation of Arkansas Income Tax Credits

1. This program provides an Arkansas income tax credit equal to four percent (4%) of the payroll of each new full-time permanent employee for a period of five (5) years from the effective date of the financial incentive agreement.

2. The calculations of the income tax credit is as follows:

Payroll of New Full-Time Permanent Employees x 4% = Total Credits

D. Calculation of Sales Tax Credit

1. This program offers a sales tax credit in the amount of twenty-five percent (25%) of total project costs if the approved tourism attraction is located in a high-unemployment area.

2. If the approved tourism attraction is located in any other county the program offers a sales tax credit in the amount of fifteen percent (15%) of the total project cost.

3. The calculation of the sales tax credit is as follows:

VII. Restrictions

No person or entity may take advantage of this program and any other tax incentive program.

Non-Profit Incentive Act of 2005 (Act 1277 of 2005 as amended)

Rules and Regulations

I. Introduction

The primary purpose of the Non-Profit Incentive Program is to encourage the location or expansion of national or regional non-profit headquarters in Arkansas. This incentive program may only be offered at the discretion of the Director of the Arkansas Economic Development Commission. Eligible non-profit organizations must create a payroll for new full-time permanent employees of at least five hundred thousand dollars ($500,000) and pay an average wage in excess of one hundred and ten percent (110%) of the state or county average wage (whichever is less) in the county in which the organization locates or expands. In addition, the non-profit must receive seventy-five percent (75%) of its income from out-of-state sources.

For additional information contact:

Arkansas Economic Development Commission

Incentives Manager

One Capitol Mall

Little Rock, AR 72201

(501) 682-5277

II. Definitions

(a) "Average hourly wage" means the weekly earnings, excluding overtime, bonuses, and company paid benefits, of all new full-time permanent employees hired after the date of the signed financial incentive agreement, divided by the number of new full-time permanent employees, divided by forty (40);

(b) "Commission" means the Arkansas Economic Development Commission;

(c) "County or state average hourly wage" means the weighted average weekly earnings for Arkansans in all industries, both statewide and county wide, as calculated by the Arkansas Department of Workforce Services in their most recent Annual Covered Employment and Earnings publication, divided by forty (40);

(d) "Director" means the Director of the Arkansas Economic Development Commission;

(e) "Financial incentive agreement" means an agreement entered into by an eligible non-profit organization and the Arkansas Economic Development Commission to provide the organization an incentive to locate in Arkansas;

(f) "Governing authority" means the quorum court of a county or the governing body of a municipality;

(g) "Income" means the monies received by a non-profit organization for operations of the organization and shall include donations, revenue from sales or memberships, grants or legislative appropriations;

(h)

(1)

(A) "New full-time permanent employee" means a position or job which was created pursuant to the signed financial incentive agreement and which is filled by one (1) or more employees or contractual employees who were Arkansas taxpayers during the year in which the tax credits or incentives were earned.

(B) The position or job held by such employee or employees must have been filled for at least twenty-six (26) consecutive weeks with an average of at least thirty (30) hours per week.

(2) Provided, however, in order to qualify for the provisions of this act, a contractual employee must be offered a benefits package comparable to a direct employee of the non-profit organization seeking incentives under this subchapter;

(i) "Non-profit organization" means an entity which has filed papers with and been approved by the Arkansas Secretary of State as having met the qualifications for a non-profit organization in Arkansas and which has also received a § 501 (c) (3), § 501 (c) (6), or § 501 (c) (9) designation from the United States Internal Revenue Service prior to applying for the benefits afforded under this subchapter;

(j) "Payroll" means the total taxable wages, including overtime and bonuses, paid during the preceding tax year of the eligible non-profit organization to new full-time permanent employees hired after the date of the signed financial incentive agreement;

(k)

(1) "Project" means:

(A) Preconstruction costs, including project planning costs, architectural/engineering fees, right-of-way purchases, utility extensions, site preparations, purchase of mineral rights, building demolition, builders risk insurance, capitalized start-up costs, deposits and process payments on eligible machinery and equipment and other costs necessary to prepare for the start of construction;

(B) Costs associated with the construction of a new plant or facility; including, but not limited to, land, building, production equipment or support infrastructure; or

(C) Costs associated with the expansion of an established plant or facility by adding to the building, production equipment, or support infrastructure; or

(D) Cost associated with modernization of an established plant or facility through the replacement of production or processing equipment or support infrastructure that improves efficiency or productivity.

(2) "Project" does not include:

(A) Expenditures for routine repair and maintenance that do not result in new construction or expansion;

(B) Routine operating expenditures; or

(C) Expenditures incurred at multiple facilities.

(3) In order to receive credit for, or refunds related to project costs, the costs must be incurred within four (4) years from the date the financial incentive agreement was signed by the Commission.

(l) "Project plan" means the plan submitted to the Commission containing such information as may be required by the Director to determine eligibility for benefits. If approved, the project plan becomes a supplement to the financial incentive agreement; and

(m) "Start of construction" means any activity which causes a physical change to the building and/or property identified as the site of the approved project, excluding engineering surveys, soil tests, land clearing and extension of roads and utilities to the project site.

III. To Qualify for the Program a Non-Profit Organization Must

(a) Have a payroll of new full-time permanent employees in excess of five hundred thousand dollars ($500,000) annually.

(b)

(1) Pay wages that average in excess of one hundred and ten percent (110%) of the lesser of the county or state average wage; and

(2) Receive a minimum of seventy-five percent (75%) of its income from out-of-state sources.

(c) Hospitals, medical clinics, accredited academic educational institutions and churches are specifically excluded from receiving the benefits authorized by this subchapter.

(d) Non-profit organizations must meet the payroll threshold and the average hourly wage threshold and invest a minimum of two hundred fifty thousand dollars ($250,000) in order to receive the sales and use tax refund authorized by this program. A sales tax refund will be made only after the audit of expenditures and payroll by the Revenue Division of the Arkansas Department of Finance and Administration has determined the non-profit organization is in compliance with all qualifications to receive benefits under this act.

IV. Terms of Financial Assistance Payroll rebate:

(a) The award of this incentive is at the discretion of the Director of the Arkansas Economic Development Commission.

(b) Benefits are conditioned upon the hiring of new full-time permanent employees and certifying to the Department of Finance and Administration that the requisite payroll thresholds have been met.

(c) The requisite annual payroll for new full-time permanent employees of five hundred thousand dollars ($500,000) shall be reached within twenty-four (24) months of the signing of the financial incentive agreement in order for the benefits of this section to be approved.

(d) If the Director of the Arkansas Economic Development Commission and the Director of the Department of Finance and Administration find that the non- profit organization has presented compelling reasons for an extension of time, the Director of the Arkansas Economic Development Commission may grant an extension of time not to exceed twenty-four (24) months to reach the requisite annual payroll.

(e) In addition to having an annual payroll of five hundred thousand dollars ($500,000) or more, the non-profit organization applying for benefits under this act shall pay average hourly wages in excess of one hundred and ten percent (110%) of the lesser of the state or county average wage for the county in which the organization locates or expands.

(f) Payments to non-profit organizations with an annual payroll in excess of five hundred thousand dollars ($500,000) shall be considered and may be authorized by the Director, after having signed a financial incentive agreement with the non-profit organization. The payment will be four percent (4%) of the annual payroll of the new full-time permanent employees.

(g) The Director may authorize this benefit for up to five (5) years.

Sales and Use Tax Refund:

(a)

(1) In order to qualify for the sales and use tax refund authorized by this section, a qualified non-profit organization must qualify for the payroll rebate program and spend in excess of two hundred fifty thousand dollars ($250,000) on buildings, machinery and equipment in the new or improved facility.

(2) An eligible non-profit organization must file an application with the Commission before the start of construction. The application shall include a project plan which clearly identifies the intent of the project, the expenditures planned, the start and end date of the project and an estimate of total project costs. In order to receive refunds related to project costs, the costs must be incurred within four (4) years from the date the financial incentive agreement was signed by the Commission and;

(A) The application must include an endorsement resolution from the governing authority of a municipality or county in whose jurisdiction the non- profit organization will be located.

(B) The resolution shall:

(i) Endorse the applicant's participation in this sales and use tax refund program; and

(ii) Authorize the refund of any sales and use tax levied by the municipality or county.

(b)

(1) A sales and use tax refund of state and local sales and use taxes, excepting the sales and use tax dedicated to the Educational Adequacy Fund, as authorized by Act 107 of the 2nd Special Session of 2004 and the Conservation Tax Fund, as authorized by Arkansas Code Annotated 19-6-484, on the purchases of the material used in the construction of a building or buildings or any addition, modernization, or improvement thereon for housing any new or expanding non- profit organization, and machinery and equipment to be located in, or in connection with, such a building, shall be authorized by the Director of the Department of Finance and Administration.

(2) A refund shall not be authorized for:

(A) Routine operating expenditures; or

(B) The purchase of items previously purchased as part of a project under this subsection unless the items previously purchased are necessary for the implementation or completion of the project.

(c) Subject to the approval of the Arkansas Economic Development Commission, a program participant may make changes in a project by written amendment to the project plan filed with the Commission, provided that the amendment complies with Arkansas Code Annotated 15-4-3207(h)(2).

(d) All claims for sales and use tax refunds under this section shall be denied unless they are filed with the Revenue Division of the Department of Finance and Administration within three (3) years from the date of the qualified purchase or purchases.

V. Program Administration

(a)

(1) In order to qualify for a sales and use tax refund, a non-profit organization must reach the two hundred fifty thousand dollars ($250,000) investment threshold within four (4) years from the date of the signed financial incentive agreement.

(2) All claims for sales and use tax refunds shall be filed annually with the Revenue Division of the Department of Finance and Administration within three (3) years from the date of the qualified purchase or purchases.

(3) Claims filed after three (3) years from the date of the qualified purchase or purchases shall be disallowed except when:

(A) A non-profit organization fails to pay sales tax on an item that was taxable; and

(B) The applicable tax is subsequently assessed as a result of an audit by the Revenue Division of the Department of Finance and Administration.

(b) All claims for sales and use tax refunds relating to an audited purchase shall be entitled to a refund of interest paid on the amount of tax assessed on the audited purchase if a refund is approved for the purchase.

(c)

(1) All claims for payroll rebates shall be certified to the Department of Finance and Administration and shall be recertified annually thereafter during the term of the financial incentive agreement.

(2) Failure to certify payroll figures and recertify those figures annually may result in a denial of payments.

(3)

(A) If the annual payroll of the non-profit organization applying for benefits under this subchapter is not met within twenty-four (24) months after the signing of the financial incentive agreement, the non-profit organization may request, in writing, an extension of time to reach the required payroll threshold.

(B) If the Director of the Arkansas Economic Development Commission and the Director of the Department of Finance and Administration find that the non-profit organization has presented compelling reasons for an extension of time, the Director of the Arkansas Economic Development

Commission may grant an extension of time not to exceed twenty-four (24) months.

(d)

(1) If the annual payroll of a non-profit organization receiving benefits under this subchapter falls below the threshold for qualification in a year subsequent to the one in which it initially qualified for the incentive, the benefits outlined in the financial incentive agreement will be terminated unless the non-profit organization files a written application for an extension of benefits with the Arkansas Economic Development Commission explaining why the payroll has fallen below the level required for qualification.

(2) The Director of the Arkansas Economic Development Commission and the Director of the Department of Finance and Administration may approve the request for extension of time, not to exceed twenty-four (24) months, for the non-profit organization to bring the payroll back up to the requisite payroll threshold amount and may approve the continuation of benefits during the period the extension is granted.

(3) If a non-profit organization fails to reach the payroll threshold before the expiration of the twenty-four (24) months or the time period established by a subsequent extension of time, the non-profit organization will be liable for repayment of all payroll benefits previously received by the non-profit organization.

(e)

(1) If a non-profit organization fails to maintain the average hourly wage requirements for benefits under this subchapter, the non-profit organization will be liable for the repayment of all payroll benefits previously received by the non- profit organization after the average hourly wage for new full-time permanent employees fell below the required threshold.

(2) After a non-profit organization has failed to maintain the average hourly wage requirements, the Department of Finance and Administration shall have two (2) years to collect benefits previously received by the non-profit organization or file a lawsuit to enforce the repayment provisions.

(f)

(1) If a non-profit organization fails to notify the Department of Finance and Administration that the annual payroll of the non-profit organization has fallen below the threshold for qualification for and retention of any incentive authorized by this subchapter, that non-profit organization will be liable for the repayment of all payroll benefits which were paid to the non-profit organization after it no longer qualified for the benefits.

(2) After a non-profit organization has failed to notify the Department of Finance and Administration that the non-profit organization has fallen below the payroll threshold, the Department of Finance and Administration shall have two (2) years to collect benefits previously received by the non-profit organization or file a lawsuit to enforce the repayment provisions.

(3) Interest shall also be due at the rate of ten percent (10%) per annum.

(g)

(1) For a qualified non-profit organization taking advantage of the sales and use tax refund, if the project costs exceed the initial project cost estimate included in the approved financial incentive agreement, the non-profit organization shall submit an amended project plan, as soon as the cost overrun is recognized, to include the updated cost figures.

(2)

(A) Amendments that exceed twenty-five percent (25%) of the original financial incentive agreement estimate will not be considered and shall be submitted as a new project.

(B) An amendment shall not change the start date as specified in the original project.

(h) The Department of Finance and Administration may obtain whatever information is necessary from a participating non-profit organization and from the Arkansas Department of Workforce Services to verify that a non-profit organization that has entered into financial incentive agreements with the Arkansas Economic Development Commission is complying with the terms of the financial incentive agreements and reporting accurate information concerning investments and payrolls to the Department of Finance and Administration.

(i) The Department of Finance and Administration may file a lawsuit in the Circuit Court of Pulaski County, or the circuit court in any county where a qualifying non-profit organization is located, to enforce the repayment provisions of this subchapter.

(j) The Commission may promulgate rules and regulations, as needed, to administer the provisions of this subchapter.

(8/11/2009)

The following state regulations pages link to this page.