Arkansas offers an R&D Tax Credit for businesses incurring qualified research expenses within the confines of the state. The credit is divided into three classifications, In-House R&D, In-House Targeted Business R&D, R&D in the Area of Strategic Value, and R&D with Universities Tax Credit. The state’s definition of qualified research expenses (QREs) is aligned with the federal government’s definition of QREs found in section 41 of the IRC. Eligible entities include R&D include C-Corporations, S-Corporations, LLCs, and Partnerships.
Arkansas’s credit is broken down into three categories which are described as follows:
Inhouse Research and Development: Allows business performing qualified R&D as defined by IRC Sec. 41 to claim a credit equal to 20% of QREs that exceed the base period amount. To calculate this credit, taxpayers will need: (1) current year QRE information, (2) QREs for the previous 5 years. This credit may be used to offset up to 100% of a company’s tax liability.
In-House Research by a Targeted Business: Allows business designated as “targeted business” by the state AEDC Executive Director to claim a tax credit equal to 33% of total QREs for up to five years. To apply for this credit, taxpayers must submit a project plan which includes:
- Description of the research
- Start dates and end dates for the research
- Planned expenditures
- Estimate of total project costs
Taxpayers that claim this credit may sell the credit with approval from the AEDC.
R&D in an Area of Strategic Value: Allows business that invest in either of the following two areas to claim an income tax credit equal to 33% of QREs:
- Research in an area of strategic value having long-term economic or commercial value to the state
- Projects offered by the AR Science and Technology Authority
Strategic value areas must be deemed as such by the state. The maximum credit that can be claimed by any taxpayer under this program is $50,000.
University-Based R&D: Allows eligible entities to that contract with any Arkansas college or university to claim an income tax credit equal to 33% of QREs.