Industrial revenue bonds provide manufacturers with competitive financing. Interest on tax-exempt issues, which is normally 80 percent of prime, may vary depending on terms of the issue.
The primary goal of industrial revenue bonds is to enable manufacturers to purchase land, buildings and equipment to expand their operations. In addition to tax-exempt bonds, taxable industrial revenue bonds may be used for distribution facilities and company headquarters at long-term fixed rates and for manufacturing projects that exceed $10 million in capital costs or do not meet other federal guidelines relative to tax-exempt bond financing.
Businesses that use either tax-exempt or taxable industrial revenue bond financing can negotiate with the local community for a payment in lieu of property taxes.
Industrial revenue bond guarantees:
Arkansas's Bond Guaranty Program helps companies that have a financial history but are unable to sell industrial revenue bonds to the public by providing a credit enhancement. Bonds can be sold at a higher credit rating, thus lowering the effective interest rate for the company. Bondholders are assured of payment up to $5 million of a bond issue. For larger projects, the Arkansas Economic Development Commission (AEDC) can partner with the Arkansas Development Finance Authority (ADFA), a statewide issuer, which has a similar bond guaranty program, to guarantee up to $11 million when combined. The Commission and ADFA charge a five percent fee for guaranteeing Industrial Revenue Bonds
Community Development Block Grant Program:
The Arkansas Economic Development Commission (AEDC) administers the federally funded state Community Development Block Grant Program (CDBG) for Arkansas. CDBG funds may be loaned to manufacturers for fixed-asset financing on projects that create jobs for low- to moderate-income families. Examples of eligible activities for this set-aside loan program include acquisition of property, purchase of equipment, leasehold improvements, and construction or expansion of buildings or physical plants.
Arkansas Capital Corporation:
The Arkansas Capital Corporation Group (ACCG) is a privately owned group of for-profit and nonprofit corporations which provide capital to businesses and advocate entrepreneurism through fiscal, educational and technical improvements. The ACCG includes eight affiliates: Arkansas Capital Corporation, Six Bridges Capital Corporation, Arkansas Capital Relending Corporation, Arkansas Economic Accelerator Foundation, Diamond State Ventures, Heartland Renaissance Fund, Connect Arkansas, and Pine State Capital. Through these affiliates, the ACCG provides venture and patient capital, private equity, SBA loans, small business loans under the U.S. Department of Agriculture’s Intermediary Relending program, new market tax credits, and foreign investment capital. Since its inception in 1957, the ACCG has financed projects of more than $500 million for start-ups, expansions, and acquisitions.
Tax increment financing:
Local governments in Arkansas can issue bonds or notes to finance improvements in a redevelopment district. The bonds will be paid back from the increased tax revenue generated as a result of the improvements. A redevelopment district must be in an area that is considered blighted, deteriorated or underdeveloped.
Venture Capital Investment Fund:
The Arkansas Institutional Fund, a venture capital investment program authorized by the Arkansas Development Finance Authority and managed by Cimarron Capital Partners, invests in proven, professionally managed private equity and venture capital funds that provide risk capital to promising Arkansas firms.
Existing Business Resources:
AEDC's Existing Business Division administers two programs that provide training for new and expanding businesses in Arkansas.
The Business and Industry Training Program (BITP) helps new and expanding businesses with recruiting workers, pre-employment training, on-the-job training, and train-the-trainer programs. The BITP program also provides training assistance for existing businesses with new technology needs.
Eligible businesses include manufacturing firms, national and regional corporate headquarters, distribution centers, intermodal facilities, knowledge-based companies, biotechnology companies, office sector businesses, and scientific and technical service businesses.
The Existing Workforce Training Program (EWTP) provides financial assistance to Arkansas's businesses and eligible consortia of businesses upgrading the skills of the existing workforce. Skills upgrade training is instruction conducted in a classroom environment at a work site, an educational institution or a neutral location, that provides an existing, full-time employee with the new skills necessary to enhance productivity, improve performance and/or retain employment.
- Eligible businesses: • Manufacturing - NAICS codes 31-33
- Biotechnology - NAICS code 541710
- National/Regional Corporate Headquarters - NAICS code 551114
- Air transport - NAICS code 488190
- Building Trades - NAICS codes 236 and 238 (23899 not eligible)
The following companies must derive at least 75 percent of sales revenue from out of state:
- Computer Firms
- Intermodal Facility or Distribution Center
- Office Sector (non-retail business)
- Scientific & Technical Services
- Motion Picture Production
- Eligible Employees
Financial assistance is available in two forms: For businesses or consortia that use state-supported educational institutions for eligible training, grant amounts shall be the lesser of the amount paid for such training of the institutional hourly rate established by the governing council, not to exceed $100 per instructional hour times the number of instructional hours delivered. Tax credits are available to eligible businesses that conduct internal training using business trainers or consultants. Tax credits cannot exceed $25 per instructional hour. Businesses may not receive grants and credits for the same training.
Training is for full-time, permanent employees who work at least 30 hours a week and are subject to Arkansas's personal income tax.
Seed Capital Investment Fund:
Managed by the Arkansas Science and Technology Authority (ASTA), the Seed Capital Investment Program (SCIP) fosters the development of innovative technology-based businesses and projects that will stimulate economic growth and industrial competitiveness in Arkansas. The SCIP can provide working capital to help support the initial capitalization or expansion of technology-based companies located in Arkansas. The program can provide working capital up to $500,000 of the company's total financing needs. Investments made by the SCIP fund can be repaid through a variety of instruments, including direct loans, participations and royalties.
Risk Capital Matching Fund:
The Arkansas Risk Capital Matching Fund contains two separate accounts: the Technology Validation Account and the Enterprise Development Account. Funds in the Technology Validation Account are available for investment in the technology validation process for the purpose of assisting very early stage technology-based enterprises. Funds in the Enterprise Development Account are available for investment in early stage technology-based enterprises to augment the investments made or proposed to be made from angel investors and other individual or institutional investors.
Performance-Based Incentive Programs (Consolidated Incentive Act of 2003) Advantage Arkansas:
The program offers a state income tax credit for job creation based on the payroll of the new employees hired as a result of the project.
The benefits under this program are determined in relation to the tier in which the business locates. The state is segmented into four tiers based on poverty rate, population growth, per capita personal income and unemployment rate. Benefits range from four percent of payroll per year for five years in a Tier 4 county, to one percent of payroll per year for five years in a Tier 1 county.
The Tax Back program provides sales and use tax refunds on the purchase of building materials and machinery and equipment in conjunction with an approved project. Tax Back requires a minimum investment of $100,000 for a new construction, expansion or modernization project approved by AEDC. This program also requires a job creation agreement under the Advantage Arkansas or Create Rebate programs.
The InvestArk program is available to businesses established in Arkansas for two years or longer investing $5 million or more in a new construction, expansion or modernization project. The incentive offered by this program is a sales and use tax credit based upon a percentage of eligible project expenditures equal to one-half percent above the state sales and use tax rate in effect at the time the project is approved by AEDC. The credit may be used to offset 50 percent of the businesses' state sales and use tax liability. The credit can be applied against the businesses' state sales and use tax liability in the year following the year of the expenditure. If the entire credit cannot be used in the year earned, the remainder may be carried forward for five years, or until the credit is entirely used. Total project expenditures must be incurred within four years of the project plan certification.
The Create Rebate program provides financial incentives to companies based upon a percentage of new payroll created as a result of approved projects.
This incentive requires a minimum payroll of $2 million for the new permanent employees and provides annual financial incentive payments up to 10 years based upon a percentage of payroll for the new permanent employees. The annual payroll threshold of the new employees must be met within 24 months following the date a financial incentive agreement is signed with AEDC. Payments under this program, ranging from 3.9 percent to 5 percent of new payroll, are determined in relation to the tier in which the business locates. The state is segmented into four tiers based on poverty rate, population growth, per capita personal income and unemployment rate.
This program offers an income tax credit equal to 10 percent of the investment in land, buildings and equipment associated with an approved project.
The benefits under this program are the same regardless of the tier in which the business locates; however, the company must meet the investment and income thresholds established for the tier in which it locates or expands. This incentive may only be offered at the discretion of the AEDC executive director.
Targeted business incentives:
These discretionary incentives are for start-up companies in emerging sectors that are less than five years old, have an annual payroll between $100,000 and $1 million, and pay at least 150 percent of the lesser of the state or county average hourly wage in which the business locates, and have a minimum equity investment of $250,000.
Emerging technology sectors include:
- Advanced materials and manufacturing systems
- Agriculture, food, and environmental sciences
- Biotechnology, bioengineering, and life sciences
- Information technology
- Transportation logistics
- Bio-based products
Companies meeting these criteria are eligible for a transferable income tax credit equal to 10 percent of payroll for up to five years, a transferable income tax credit equal to 33 percent of eligible research and development costs, and sales and use tax refunds on building materials and machinery and equipment.
Research and development incentives:
Arkansas provides a 33 percent income tax credit for taxpayers who pay for research performed at Arkansas universities. In addition, a 20 percent income tax credit is available for eligible businesses performing in-house research. Targeted businesses may also earn income tax credits equal to 33 percent of approved expenditures for in-house research.
Equity Investment Incentive Act:
The Equity Investment Incentive Program is a discretionary incentive targeted toward new, technology-based businesses that pay wages in excess of the state or county average wage. This program allows an income tax credit to investors purchasing an equity investment in eligible businesses. The income tax credits issued under this program are equal to 33 1/3 percent of the approved equity investment in an eligible business. Any unused credit may be carried forward for nine years.
Childcare facility tax incentives:
Companies can receive a sales and use tax refund on the initial cost for construction materials and furnishings purchased to build and equip an approved child-care facility.
A corporate income tax credit of 3.9 percent of the total annual payroll of the workers employed exclusively to provide childcare services, or a $5,000 income tax credit for the first year the business provides its employees with a day-care facility is also available.
Non-Profit Incentive Program:
Offered at the discretion of the AEDC executive director, this incentive encourages the location or expansion of national or regional nonprofit headquarters in Arkansas. An eligible organization must create a payroll for new, fulltime, permanent employees of at least $500,000, pay an average wage in excess of 110 percent of the state or county average wage (whichever is less) in the county in which the organization locates or expands, and receive 75 percent of its income from out-of-state sources. This program provides a payroll rebate equal to four percent of the payroll of the new, full-time, permanent employees for a period of up to five years. For projects that invest a minimum of $250,000, it also provides a refund of sales and use taxes paid on construction materials, machinery and equipment.
Raw materials and finished goods in transit or awaiting shipment to out-of-state customers are exempt from property tax.
Machinery and equipment:
An exemption from sales and use taxes is provided for machinery and equipment used directly in manufacturing and purchased for a new manufacturing facility or to replace existing machinery or equipment. Machinery and equipment required by Arkansas law to be purchased for air- or water-pollution control or for removal of sulfur pollutants from refined petroleum are also exempt.
Industrial fuels and raw materials:
Property that becomes a recognizable, integral part of property manufactured, compounded, processed, or assembled for resale is exempt from sales and use taxes.
Crude oil, electricity used in the production of aluminum metal by the electrolytic reduction process, and fuel for railroads are exempt from sales and use taxes.
Catalysts, chemicals, re-agents and solutions consumed or used in producing, manufacturing, fabricating, processing, or furnishing articles of commerce at manufacturing or processing plants or facilities and/or to prevent or reduce air, water and other contamination are also exempt from sales and use tax.
New aircraft manufactured or substantially completed within the state and sold for use outside the state are exempt from the sales tax. An exemption from the use tax is allowed for aircraft and aircraft equipment, railroad cars, parts and equipment, and property leased by the railroad and aircraft companies if these items are brought into the state for refurbishing and removed from the state within 60 days, or if they are stored in the state for use outside the state.
Energy (electricity and natural gas) used by manufacturers in the manufacturing process is subject to a reduced sales and use tax rate of 3.25 percent effective July 1, 2013.
Recycling equipment tax credit:
A tax credit is available for the purchase of equipment used exclusively for reduction, reuse, or recycling of solid-waste material for commercial purposes, whether or not for profit, and the cost of installation of such equipment by outside contractors. Ten percent of the recycled solid waste must be post-consumer content. The tax credit shall equal 30 percent of the cost of eligible equipment and installation costs. Credits may be carried forward for a maximum of three consecutive years following the taxable year in which the credits accrued.
Tourism development credit:
The Arkansas Tourism Development Act provides state sales tax credits and income tax credits to eligible businesses initiating approved tourist attraction projects with a minimum project cost of $500,000 in high-unemployment counties and $1 million in any other county.
The sales tax credits of the approved cost depend on the amount of investment. The credit earned may only be used to offset the increased tax liability incurred as a result of the project. Any unused credit may be carried forward for a period of 9 years.
The income tax credit provided by this program is equal to four percent of the payroll of the new, full-time, permanent employees of the approved tourism project. The credit is applied against the tax liability for the tax year the credit was earned. Any unused credit may be carried forward 9 years. Other review criteria may be requested by the Arkansas Economic Development Commission (AEDC) to determine whether the tourism-attraction project will further the purposes of the act.
Tuition Reimbursement Act:
The Tuition Reimbursement Act provides a 30 percent income tax credit to eligible businesses for the costs they incur in reimbursing employees for tuition, books and fees for training or courses at accredited Arkansas postsecondary educational institutions to improve job skills. A business’ tax credit cannot offset more than 25 percent of its income tax liability in any year. An employee must be a permanent full-time employee to qualify.
Eligible businesses include:
- Manufacturers classified in sectors 31-33 in the North American Industry Classification System;
- Eligible computer businesses that derive at least seventy-five percent (75%) of revenue from out-of-state sales and have less than ten percent (10%) of retail sales to the general public;
- Motion picture production companies that derive at least seventy-five percent (75%) of revenue from out-of-state sales and have less than ten percent (10%) of retail sales to the general public;
- Distribution centers for the reception, storage, or shipping of (a) their own products or products that the business wholesales to retail businesses or ships to its own retail outlets (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 are from out-of-state customers; or (c) products for sale to the general public if seventy-five percent (75%) of sales revenues are from out-of-state customers;
- Office sector businesses with less than ten percent (10%) of retail sales to the general public;
- National or regional corporate headquarters with less than ten percent (10%) of retail sales to the general public;
- Firms primarily engaged in commercial, physical, and biological research as classified in the North American Industry Classification System Code 541710, as in effect on January 1, 2005;
- Scientific and technical services businesses that derive at least seventy-five percent (75%) of revenue from out of state and pay average hourly wages that exceed one hundred fifty percent (150%) of the county or state average hourly wage, whichever is less.
Arkansas has one of the most progressive workers' compensation programs in the nation, with more than 230 certified insurance underwriters. Arkansas’s cumulative loss cost level decreased by 53 percent from 1996 to 2012. Arkansas Public Roads Improvement Credit Act:
This act provides an income tax credit up to 33 percent to any individual, fiduciary or corporation subject to Arkansas income tax that contributes to the Public Roads Incentive Fund. Each taxpayer that contributes to the fund may make a general contribution or designate a project for which the contribution is earmarked. The credit claimed in any year shall not exceed 50 percent of the taxpayer's net Arkansas income tax liability after all credits and reductions have been applied.
Small Business Loan Program:
This program stimulates small business by providing up to one-half the amount of participation loans referred by approved community lenders. A small business is one with fewer than 50 full-time employees and less than $1 million in annual gross sales, excluding agricultural production. AEDC's share cannot exceed 50 percent of the total loan amount, and cannot be less than $2,500 or more than $40,000. The business must provide the lender with a sound business plan, proof of creditworthiness, collateral, and a demonstrated need. Proceeds may be used to purchase machinery and equipment, to stabilize working capital, and/or to purchase, construct or renovate commercial real estate.
Arkansas State Contact:
Arkansas Economic Development Commission
900 W. Capitol Avenue
Little Rock, AR 72201
Incentive and tax information is provided to Area Development by each state's economic development or commerce agency for information purposes only and is subject to revision at any time by the state government. Please contact the state agency directly for full requirements and offerings.