Arkansas R&D Tax Credit

In the interest of encouraging research and development, the federal government and 30 states, including Arkansas, offer a credit for qualified research expenditures to be applied against both federal and state taxes.

The Arkansas R&D tax credit is:

• Valued at up to 33% of qualified research expenditures

• Divided into different sections for university-based research, in-house research, and select tech start-up research and development.

• Capped at $10,000 per year

• Available to be utilized against tax liability for up to 100% of the company’s total tax liability for the year.

Unused amounts of credit for the year are not refundable, but can be carried forward for up to nine years.

Does your business qualify for the Arkansas research and development tax credit?

• If you currently do business that involves research and development in Arkansas, you may be eligible for the Arkansas R&D tax credit.

• Is your business an LLC, S corporation, C corporation, or partnership? Sole proprietorships do not qualify for the credit.

• Since the Arkansas tax credit is based on the federal one, the federal four-part test requirement must be met to activate the credit.

  • Qualified purpose test – the expenses must be for creating a new product or improving on a current one. This product does not have to be something new to the entire industry, but merely to the company conducting the research.

  • Elimination of uncertainty – the company must have a concrete plan in place for its research and development process. This is where many companies fail the test – often companies know that they can produce the innovation they need, but don’t have a concrete plan to show what they plan to do.

  • Process of experimentation – the company must prove that they are trying different things in their improvement, innovation, or invention process. This experimentation can be conducted by anyone that the company is paying to do the research, whether it is an employee, an independent contractor, or a scientist in a university lab doing research paid for by the company.

  • Technological in nature – the research in question must be based on one of the hard sciences, such as engineering, chemistry, biology, or computer science.

If your business meets all four parts of this test, you can submit proof of both the expenditures and their R&D purpose, along with the appropriate form, to the Arkansas Department of Finance and Administration to claim the credit.

This proof can consist of any documentation that shows the research nature of your business expenses, including:

• general ledger detail

• payroll records

• project notes

• lab results

• emails and other business communications.

Ready to claim your credit? Contact us to speak with one of Endeavor Advisors R&D tax credit professionals to get started with the process.