Patching Up the Consolidated Incentives Act: HB1490 Would Make Numerous Revisions to Arkansas Incentives

While so much attention is on the highway bill, businesses and economic developers should note a significant economic development bill, HB1490, that was introduced yesterday.  HB1490, which is sponsored by Representative Carlton Wing and Senator Mat Pitsch, revises and improves the Consolidated Incentives Act of 2003.  This statute governs most state-level business incentives: Advantage Arkansas, Create Rebate, Tax Back, ArkPlus, R&D credits, etc.  The numerous incremental changes would be a significant general improvement and should give the Arkansas Economic Development Commission (AEDC) more flexibility in structuring inducements to bring jobs and investment to Arkansas.

HB1490 is a lengthy 46-page complete revision of the Consolidated Incentives Act.  While many of the changes are wording clarifications, a number of substantive changes are also included. A complete blow-by-blow summary of the changes is beyond the scope of this post, but highlights of HB1490 include:

  • Reduced requirements for the Create Rebate payroll incentive in higher-tier (more distressed) counties.  The threshold currently is $2,000,000 for all counties.  That would remain the case for tier 1 (wealthiest) counties and would reduce to $1,750,000 for tier 2, $1,500,000 for tier 3, and $1,250,000 for tier 4 counties.  As Create Rebate is typically much more valuable than Advantage Arkansas (cash rebate versus income tax credit), this would help less prosperous parts of Arkansas attract mid-size projects.
  • An additional 1% "kicker" for Advantage Arkansas or Create Rebate incentives for high-wage employers, looking at whether the hourly wage for the employees exceeds 125% of the lesser of the county or state hourly wage.  With Arkansas unemployment at an all-time low, this will help AEDC attract higher-paying jobs.
  • Increased minimum investment requirements for Tax Back projects.  Currently the threshold is $100,000 of new investment.  This would increase to between $200,000 for tier 4 (most distressed) counties to $500,000 for tier 1 (wealthiest) counties.
  • Broadening the kinds of businesses and projects eligible for incentives:
    • Clarification of "corporate headquarters" projects, including regional headquarters projects;
    • Relaxing the out-of-state sales requirement from 75% to 51% for certain kinds of businesses;
    • Expanding film production to almost any kind of video or audio-video media production ("film and digital product"); and
    • Adding businesses engaged in supporting activities for air transportation or rail transportation.
  • Slightly relaxed criteria for the technology-based enterprise incentive.
  • Simplification (and perhaps limitation) of the Arkansas R&D credit.
  • Clarification of the clawback provisions generally applicable to these incentives.

At this time the bill does not specify an effective date, and so presumably it would come into effect 90 days after adjournment sine die (typically mid-to-late summer).  Perhaps clarifying language will be added that the changes will apply only prospectively to new incentive packages, so as to clearly grandfather in existing, approved incentives packages.

On the whole, HB1490 seems a well-done modernization of the Consolidated Incentives Act.  While it does not solve some of the fundamental compliance headaches that came to light in Tax Reform and Relief Legislative Task Force hearings, the bill makes numerous incremental improvements to Arkansas incentives.  The relaxed Create Rebate requirements in less wealthy counties and the 1% high-wage "kicker" should be particularly beneficial to AEDC efforts to attract good jobs.

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