Arkansas R&D Tax Credits

State and Federal Credits Available

20%

Incremental in-house QRE rate

33%

Targeted/ strategic/ university rate

9 yrs

Carryforward

100%

Tax liability offset

The Arkansas Research and Development Tax Credit, administered through the Arkansas Economic Development Commission (AEDC) and the Arkansas Science and Technology Authority (ASTA), incentivizes businesses to invest in qualified research activities within the state. Enacted under Ark. Code Ann. § 15-4-2708 and related provisions in Title 26 (e.g., §§ 26-51-1101 to 1105), these credits offset income tax liabilities and support innovation in sectors like biotechnology, advanced manufacturing, and information technology.

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20%

Incremental in-house QRE rate

33%

Targeted/strategic/university rate

9 yrs

Carryforward

100%

Tax liability offset

Key Highlights

20% credit on in-house QREs exceeding the base (phased for new facilities)
33% credit on QREs for certified targeted, strategic, or university programs (up to 5 years)
Nonrefundable but offsets up to 100% of annual income tax due
Strategic value credits capped at $50,000 per taxpayer annually
Available to C corps, S corps, partnerships, and LLCs
Requires Certificate of Tax Credit from ASTA
Targeted credits may be sold once

Who Qualifies for the Arkansas R&D Tax Credit

Eligibility requires performing qualified research activities in Arkansas that align with federal IRC § 41 standards, adapted for state programs. Businesses must obtain approval via project plans submitted to AEDC or ASTA. Note: Arkansas defines "qualified research expenditures" (QREs) more narrowly than federal rules, focusing primarily on wages and fringe benefits for in-house, targeted, and strategic programs (supplies, equipment purchases, and most contract research are excluded).

Eligible Entities

C Corporation May claim both the regular and basic research credit
S Corporation Limited entity-level use; can pass credits to shareholders
Partnerships / LLCs Credits pass through to owners via Schedule K-1

Qualified Research Expenses (QREs)

How to Calculate the Arkansas R&D Tax Credit

Arkansas offers an incremental method for standard in-house research and a flat-rate variant for certified targeted, strategic value, or university-based programs. Calculations use Arkansas-sourced QREs only and require federal R&D qualification.

Regular Method (In-House Research)

The credit applies over a 5-year financial incentive agreement period. Base calculations differ for new vs. existing facilities:

New Facilities: Base is $0 for the first 3 years (all QREs qualify). Year 3 QREs become the base for Year 4; Year 4 QREs for Year 5.
Existing Facilities: Base is QREs from the year prior to the agreement; then follows the same 3-4-5 year progression.
Determine total Arkansas QREs for the tax year (primarily wages and benefits).
Compute base amount per the phased structure above.
Calculate excess QREs = current-year QREs - base amount.
Credit = 20% of excess QREs.

Example Calculation (New Facility, Year 1)

QREs =$1,000,000

Base =$0

Excess =$1,000,000

→ Credit = 20% × $1,000,000 =$200,000

Example (Year 4, Assuming Year 3 QREs = $700,000)

QREs =$1,000,000

Base =$700,000

Excess =$300,000

→ Credit = 20% × $300,000 =$60,000

Optional Targeted/ Strategic/ University Variant

For businesses with AEDC financial incentive agreements or ASTA-approved projects in targeted sectors (e.g., biotechnology, IT) or university collaborations:

Determine eligible QREs under the certified program (limited to wages and fringe benefits; excludes supplies, land, equipment purchases, or building construction/renovation).
Credit = 33% of QREs (no base subtraction; flat rate for first 5 years).
Strategic value cap: Maximum $50,000 credit per year.

Example Calculation

QREs under targeted program =$500,000

→ Credit = 33% × $500,000 =$165,000 (or capped at $50,000 for strategic value)

Important: Once a program is elected (e.g., targeted), it applies for typically 5 years under the financial incentive agreement. Applications must include project plans estimating costs and timelines. For targeted businesses, submit 45 days prior to tax year-end. Startups without prior base use $0 baseline for in-house claims.

Estimate Your Credits

Arkansas-Specific Rules

Arkansas tailors its R&D credits to foster targeted innovation, with certifications unlocking higher rates and unique benefits like credit sales.

Targeted Businesses

Businesses in six key sectors (advanced materials and manufacturing systems; agricultural, food and environmental sciences; bio-based products; biotechnology, bioengineering and life sciences; information technology; transportation logistics) with AEDC agreements earn 33% on QREs for 5 years. Requires application 45 days before tax year-end.

No Cap on Most Credits

Unlimited offsets against income tax for in-house and targeted programs, maximizing value for large-scale R&D without statewide limits.

Approved Projects

ASTA certification via detailed project plans ensures compliance, boosting eligibility for 33% rates in strategic or university programs. High utilization in ag-tech and life sciences.

Other Unique Rules

Pass-Through Entities: Credits flow pro-rata to owners via K-1.
Audit and Recordkeeping: Retain documentation for 3 years (statute of limitations); DFA audits focus on QRE substantiation and certification validity.
Sellable Credits: Targeted business credits may be sold once for cash value (within one year of issuance), ideal for startups.
In-State Requirement: All research must occur in Arkansas; no out-of-state QREs qualify.
Non-Combination Rule:Targeted credits cannot be combined with other in-house incentives for the same expenditures.

Targeted Businesses

No Cap on Most Credits

Unlimited offsets against income tax for in-house and targeted programs, maximizing value for large-scale R&D without statewide limits.

Approved Projects

ASTA certification via detailed project plans ensures compliance, boosting eligibility for 33% rates in strategic or university programs. High utilization in ag-tech and life sciences.

Other Unique Rules

Pass-Through Entities: Credits flow pro-rata to owners via K-1.
Audit and Recordkeeping: Retain documentation for 3 years (statute of limitations); DFA audits focus on QRE substantiation and certification validity.
Sellable Credits: Targeted business credits may be sold once for cash value (within one year of issuance), ideal for startups.
In-State Requirement: All research must occur in Arkansas; no out-of-state QREs qualify.
Non-Combination Rule:Targeted credits cannot be combined with other in-house incentives for the same expenditures.

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Arkansas R&D Tax Credits Case Study

Real results from an Arkansas biotechnology firm partnering with a state university.

$165,000

total state R&D tax credits earned

60%

of contract research expenses qualified

$412,000

total R&D tax credits earned (federal + state combined)

Frequent Asked Questions

Arkansas provides a 20% credit on incremental in-house QREs (primarily wages) and 33% for targeted, strategic value, or university-based research, administered by AEDC and ASTA under Ark. Code Ann. § 15-4-2708 and related provisions in Title 26, with narrower QRE definitions than federal IRC § 41.

Eligible activities include experimental development of new products, processes, or software in Arkansas, such as biotech innovations or manufacturing prototypes. Strike Tax identifies qualifying projects through federal-aligned tests, noting Arkansas's focus on wage-based QREs.

For $1 million in incremental QREs, you could save $200,000 at 20%, or up to $330,000 at 33% for certified programs (capped at $50,000 for strategic). Stack with federal credits. Use Strike Tax’s R&D Credit Calculator for estimates.

Credits are nonrefundable but offset up to 100% of income tax liability and carry forward for 9 years. Targeted credits may be sold. Strike Tax maximizes utilization.

Submit a project plan to AEDC or ASTA for certification, obtain Certificate of Tax Credit, and attach to your income tax return. Strike Tax handles documentation and filing.

Yes, stack state and federal credits on the same QREs for amplified savings (federal includes broader categories like supplies). Strike Tax optimizes claims across both.

ASTA approval via project plan review unlocks 33% rates for strategic or university research, ensuring compliance with innovation tests. Essential for higher credits.

Biotechnology, advanced manufacturing, and IT sectors see the highest returns due to targeted 33% rates and university partnerships. Strike Tax tailors to your industry.

Strike Tax ensures ASTA compliance, maximizes 20-33% rates, and simplifies sales for targeted credits, delivering expert support for Arkansas innovators.

For new facilities, base is $0 for years 1-3 (full QREs qualify); then Year 3 for Year 4, Year 4 for Year 5. Existing facilities use pre-agreement year as initial base.

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