One of the perks of owning a business in Arkansas is the huge variety of business tax incentives available. From industry-specific tax credits to sales and use tax exemptions, there are plenty of programs to take advantage of. Keep reading for our full list.
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Arkansas tax incentives for businesses
Advantage Arkansas Income Tax Credit
The Advantage Arkansas Income Tax Credit is a state income tax credit available to businesses that invest in job creation projects.
The credit amount is a percentage of the annual payroll of the new employee you hire and is earned each year for a period of five years. You can’t use the credit to offset more than 50% of your business’s annual income tax liability.
To qualify, you need to sign a financial incentive agreement with the Arkansas Economic Development Commission (AEDC), and then create new full-time permanent jobs that pay at least $15.99 an hour.
Learn more about the credit here.
ArkPlus Income Tax Credit
The AEDC also offers a program called ArkPlus, where businesses can get tax credits equal to 10% of their total investment in a new location or expansion project. To qualify, businesses have to put forth a minimum investment and hire a specific number of new full-time permanent employees as a result of the expansion project, depending on where their business is located.
Arkansas’s regions are broken into tiers based on their individual population, poverty rate, and unemployment rate. The minimum investment threshold ranges from $2 million to $5 million from Tier 4 to Tier 1.
If your business qualifies for ArkPlus, you can use your income tax credits to offset up to 50% of your Arkansas income tax liability.
Learn more about ArkPlus here.
Create Rebate
Arkansas’s Create Rebate is another job incentive program that gives companies annual cash payments based on their annual payroll for hiring new full-time permanent employees. To qualify, your business needs to meet a minimum payroll threshold of $2 million and sign a financial incentive agreement with the Arkansas Department of Finance & Administration.
Depending on the tier your business falls into, you can get an annual cash payment of anywhere between 3.9% and 5% of your annual payroll. See more information about the Create Rebate program on the AEDC’s website.
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Apprenticeship Program
Arkansas businesses that hire qualified youth apprentices might be eligible for the state’s Apprenticeship Program. The income tax credit is equal to the lesser of $2,000 or 10% of the apprentice’s wages.
To qualify for the credit, you need to get a certification from the Office of Apprenticeship of the US Department of Labor or the Department of Career Education. The youth apprentice must be at least 16 years old and either employed to learn an apprenticeable occupation or in a work-based learning program.
Learn more about the credit here.
Low-Income Housing Tax Credit
If your company builds or constructs residential rental units for low-income individuals in Arkansas, you might be eligible for the state’s Low-Income Housing Tax Credit. The credit amount equals 9% of the total housing development costs, minus the cost of land acquisition.
To qualify, your housing development must be traditionally financed and reserved for low-income residents only. You can learn more about the credit from the Arkansas Development Finance Authority (ADFA).
Equity Investment Incentive Program
The Equity Investment Incentive Program rewards investors for investing in certain tech-based businesses in Arkansas. Investors buying equity in tech companies that pay above the state or county average wage can get an income tax credit equal to roughly 33% of their investment amount.
Investors can use the credit to offset 50% of their income tax liability for the year. The AEDC has more information about the program here.
Targeted Business Incentives
The AEDC offers a handful of business incentives for targeted businesses, which are knowledge-based startup companies in specific industries.
To qualify as a targeted business, you have to meet these criteria:
- Show proof of an equity investment of at least $250,000
- Pay your employees at least 150% of the lesser of the state or county average hourly wage where your business is located
- Meet requisite payroll thresholds
- Be classified in one of these emerging technology sectors: advanced materials and manufacturing systems; information technology; biotechnology, bioengineering, and life sciences; agriculture, food, and environmental sciences; bio-based products, and transportation logistics
If you qualify as a targeted business, you can take advantage of these five different incentive programs:
- Sales and Use Tax Refund: You can get a refund on the sales and use taxes from purchasing building materials, machinery, and equipment necessary for approved projects.
- Payroll Income Tax Credit: Targeted businesses that pay employees significantly more than the average state or county wage can get a 10% income tax credit based on your annual payroll, up to $100,000 a year.
- Payroll Rebate: Targeted businesses with payroll costs over $250,000 can get rebates of 5% of payroll for up to 10 years—if they pay their new full-time permanent employees at least 150% of the state or county average hourly wage.
- Targeted ArkPlus: Targeted businesses that pay at least 150% of the state or county average hourly wage and have invested a minimum of $250,000 in an approved project can get an income tax credit equal to a percentage of their investment.
- In-House Research Credit: Targeted businesses can get a tax credit equal to 33% of their qualified research and development expenditures.
You can learn more about the targeted business tax incentive programs, including how to calculate your credit amount and how to apply, here.
For more information on state taxes, check out The Employer’s Guide to Business Taxes in Arkansas.
In-House Research and Development Tax Credit
The AEDC offers new and existing businesses a state research and development (R&D) credit equal to 20% of the cost of qualified research expenditures. Companies can use the credit to offset 100% of their state income tax liability.
To qualify, businesses need to conduct in-house research that qualifies for the federal R&D tax credit. That means the R&D activities must be:
- Undertaken for the purpose of discovering information that’s technological in nature
- Intended to support a new or improved business component
- Related to a new or improved function, performance, reliability, and quality of an aspect of the business
Learn more about the credit here.
Research and Development Tax Credit in the Area of Strategic Value
The AEDC also offers an R&D credit to businesses that invest in either in-house research of a strategic value or an R&D project offered by the Arkansas Science and Technology Authority.
Research in an area of strategic value is research in any field that has long-term economic or commercial value to the state, as identified by the Board of Directors of the Arkansas Science and Technology Authority.
The income tax credit is equal to 33% of qualified R&D costs, with a maximum credit of $50,000 a year. See more details here.
Tourism Development Incentive
Arkansas businesses that undertake approved tourism attraction projects can get sales tax and income tax credits.
To qualify for a sales tax credit, your business needs to invest at least $1 million in a project (or $500,000 if you’re in a high-unemployment area). If you do, you can get a credit of 15% of the eligible project costs (25% for high-unemployment areas) to apply to your sales tax liability.
You can also get a state income tax credit equal to 4% of the annual payroll of any new full-time permanent employees you hire as part of the tourism attraction project. Learn more about the tourism development incentives here.
Daycare Facility Incentive
The AEDC offers a Daycare Facility Incentive to reward businesses for creating and operating childcare facilities for their employees. If you qualify, you can get a sales and use tax refund on the purchase of construction materials and equipment used to construct or build the childcare facility.
You can also get a $5,000 income tax credit for the first year you provide the facilities to your employees, as well as a credit of 3.9% of the annual salary of the employees you hire to exclusively provide the childcare service.
Learn more about the incentive here.
Arkansas Digital Motion Picture Incentive
Arkansas offers a Digital Motion Picture Incentive to production companies that film within Arkansas and meet certain spending requirements. To be eligible for the incentive, production companies need to register with the Arkansas Film Office and abide by the following criteria:
- Spend at least $50,000 within a six-month period in connection with a postproduction project, or $200,000 within a six-month period in connection with the production of one feature project
- Apply for a production rebate certificate no later than 180 days after the last production expenses are incurred
Eligible production companies can qualify for a tax credit or a rebate, equal to 25% of the cost of qualified production costs. Those include goods, services, and resident and non-resident labor. You can get an additional 10% credit to offset the payroll costs of below-the-line employees who are full-time residents of Arkansas or veterans.
Get more details and apply for the program here.
Coal Mining Income Tax Credit
If you’re in the coal mining industry, you might qualify for Arkansas’s Coal Mining Income Tax Credit. The credit amount is $2.00 per ton of coal mined, produced, or extracted on each ton of coal mined in Arkansas in a tax year.
You can get an additional credit of $3.00 per ton for each ton of coal mined in the state in excess of 50,000 tons. To qualify, you need to sell your coal to an electric generation plant for under $40.00 per ton, excluding freight chargers.
Learn more here.
Delta Geotourism Incentive
Businesses that support geotourism—and get approved by the Arkansas Department of Parks and Tourism—can apply for the Delta Geotourism Incentive. To qualify, you have to invest a minimum of $25,000 in a geotourism-enabling project. The credit amount is equal to 25% of the qualified investment, with a maximum investment of $250,000.
Learn more here.
Equipment Donation or Sale Below Cost
Under this program, Arkansas businesses can get a corporate income tax credit for donating cash or equipment—or selling the equipment below cost—to qualified educational institutions in conjunction with qualified research programs.
You can use the credit to offset 100% of your income tax liability. See here for more details on which educational institutions qualify and how to apply for the credit.
Existing Workforce Training Act
Arkansas companies in certain niche industries can apply for the Existing Workforce Training tax credit, which rewards businesses for using state-supported educational institutions to train and educate their employees.
The credit is equal to the lesser of half the amount your company pays to the educational institution or half the instructional hourly rate times the number of instructional hours. This number can’t exceed $80 per hour with 50% or more students completing the course, or $35 per instructional hour if less than 50% of participants complete the course.
Learn more about the credit here.
Historic Rehabilitation Income Tax Credit
Available through 2027, the Historic Rehabilitation Income Tax Credit credits businesses that invest in rehabilitation projects for historic buildings and property in Arkansas. The credit is equal to 25% of the total qualified rehabilitation expenditures on the first $1.6 million of expenses on income-producing property, or $100,000 of qualified expenses on non-income-producing property.
To qualify, you need to have started a certified rehabilitation project after January 1, 2009 and invested a minimum of $25,000 in the project.
Get more information on the credit, including how to apply and what constitutes a historic property, here.
Philanthropic Investment in Arkansas Kids Program
Under this program, Arkansas businesses can get an income tax credit for donating to qualified scholarship-granting organizations that provide tuition for students to attend private schools. The credit is equal to 100% of your contributions.
Learn more here.
Public Roads Improvement Credit
Businesses that donate to the AEDC’s Public Roads Incentives Fund can get an income tax credit equal to 33% of their contribution. Businesses can use the credit to offset 100% of their income tax liability.
Learn more here.
Railroad Modernization Act Credit
Class II and III railroad companies can get an income tax credit for investing in railroad maintenance, reconstruction, or replacement projects. The credit is equal to 50% of the railroad track maintenance expenditures, with a maximum amount of $5,000 per mile of track owned or leased by the railroad.
Learn more here.
Research Park Authority Credit
Arkansas businesses can get an income tax credit for donating to an accredited higher education institution to support a research park authority. The credit amount is equal to 33% of the donation amount.
See more information here.
Rice Straw Tax Credit
With the Rice Straw Tax Credit, Arkansas businesses can get an income tax credit for purchasing large quantities of rice straws for the purposes of processing, manufacturing, or generating energy.
The credit is $15.00 for each ton of rice straw in excess of 500 tons and can be applied to 50% of a business’s income tax liability for the year.
Learn more about the credit here.
Tax Back Sales and Use Tax Refund
The Tax Back program gives eligible Arkansas companies a sales and use tax refund on the purchase of building materials, machinery, and equipment used for construction, expansion, or facility modernization projects in the state.
To qualify, your business has to invest a minimum of $100,000 in an eligible project and meet the eligibility criteria for either the Advantage Arkansas or Create Rebate programs. Get more information on which types of businesses are eligible to apply here.
Tuition Reimbursement Tax Credit
The Tuition Reimbursement Tax Credit is available to Arkansas companies that reimburse their full-time employees for the cost of tuition, books, or fees from an undergraduate or postgraduate education program at an accredited institution in Arkansas.
The credit amount is equal to 30% of the reimbursement, but can’t exceed 25% of a company’s income tax liability in a single year. Eligible businesses include:
- Manufacturing companies
- Certain computer businesses
- Motion picture production businesses
- Certain distribution centers
- Certain office sector businesses
- Certain corporate or regional headquarters
- Companies involved in commercial, physical, or biological research
- Certain scientific and technical services businesses
Get additional information on the credit here.
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Waste Reduction and Recycling Equipment Credit
The Waste Reduction and Recycling Equipment Credit gives eligible businesses a 30% credit for the cost of buying and installing waste reduction and recycling equipment. To qualify for the credit, a business must get a certification from the Arkansas Department of Environmental Quality that says they’re in the business of reducing, reusing, or recycling solid waste material for commercial purposes.
Learn how to claim the credit here.
Water Resource Conservation and Development Incentive
The Water Resource Conservation and Development Incentive helps businesses offset the cost of constructing, installing, or restoring a 20-acre foot water impoundment or water control structure used primarily for agricultural, commercial, or industrial purposes. The amount of credit is equal to 50% of the cost of the project, up to $18,000.
Learn more here.
Wetland/Riparian Zone Creation and Restoration Incentive
Under the Wetland/Riparian Zone Creation and Restoration Incentive program, eligible companies can get a $5,000 income tax credit for developing or restoring wetlands and riparian zones (as long as they maintain the areas for at least 10 years).
Businesses can also get a tax credit equal to 50% of the fair market value of any qualified real property they donate for a qualified conservation purpose. Learn more here.
Business tax exemptions in Arkansas
Certain Arkansas businesses can also get sales and use tax exemptions on certain purchases. Those include:
- Machinery and equipment used directly in manufacturing
- Machinery and equipment used for air or water pollution control, or for the removal of sulfur pollutants from refined petroleum
- Energy sold for use directly in the manufacturing process
Arkansas city and county tax credits
Some cities and counties in Arkansas have their own business tax incentive programs. To find out if yours does, check here for your county’s website.
Financing resources for small businesses in Arkansas
Tax incentives can help offset your business’s overall tax liability, but you may need more significant financial support. Fortunately, there are a handful of state-specific business loan and grant programs you can apply for as a resident of Arkansas.
For the complete list, check out Gusto’s Arkansas guide to business grants and loans.
