R&D Tax Credits in Arkansas

Arkansas offers four different credits for research and development conducted within the state. These include:

• the in-house research income tax credit;
• the in-house research by a targeted business tax credit;
• the in-house research in area of strategic value income tax credit;
• the Research and development with universities tax credit.

The In-House Research Income Tax Credit

The In-House Research Income Tax Credit authorizes an income tax credit to eligible businesses that conduct ‘‘in-house’’ research within a research facility that is operated by the eligible business. New or 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 20%. The maximum credit that can be earned by each qualified business shall not exceed $10,000 per tax year. The income tax credit may be used to offset 100% of an eligible business’s annual income tax liability.

The In-House Research Targeted Business Tax Credit

Under the authority of the Arkansas Economic Development Commission, a targeted business may be granted income tax credits equal to 33% of the QRE’s incurred each year for up to five years.

The targeted business sections are:

• advanced materials and manufacturing systems
• agriculture
• food and environmental sciences
• bio-based products
• biotechnology
• bioengineering and life sciences
• information technology
• transportation logistics

The application for this credit must include a project plan, the expenditures plan, the start and end dates of the project and an estimated total project costs. QRE’s are made up of in-house expenses for taxable wages paid and supplies used in the conduct of qualified research. The QRE’s must pass the federal 4-part test to qualify. Income tax credit for R&D earned by targeted businesses may be sold.

The In-House Research in Area of Strategic Value Income Tax Credit

The In-House Research in Area of Strategic Value Income Tax Credit authorizes an income tax credit equal to 33% of qualified research expenditures for an Arkansas taxpayer that invests in:

• in-house research in an area of strategic value; or
• a project under the research and development programs offered by the Arkansas Science and Technology Authority and approved by its board of directors.

The taxpayer must apply to the Arkansas Economic Development Commission in order to qualify for the income tax credit.Research in an area of strategic value means research in fields having long-term economic value. The tax credit may be earned for the first five years following the signing of a financial incentive agreement. The maximum tax credit that may be claimed by a taxpayer under this program is $50,000 per tax year.

The Research & Development with Universities Tax Credit

The Research & Development with Universities Tax Credit is available to taxpayers that contract with one or more Arkansas colleges or universities in performing research. They may qualify for a 33% income tax credit for qualified research expenditures. 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 Arkansas Economic Development Commission, which is then reviewed by the Arkansas Science and Technology Authority.

Case Study

A food and beverage company in Arkansas began claiming R&D credits in 2013. It was unaware of its eligibility prior to 2013. Summary of credits:

R&D File Form

To claim all 4 credits, taxpayers must attach to their tax return a copy of the Certificate of Tax Credit issued by the Arkansas Science and Technology Authority.