Arkansas Research and Development Credit

At a glance

• Jurisdiction: Arkansas (AR)
• Credit name: Research and development income tax credits under the Consolidated Incentive Act of 2003 (Ark. Code § 15-4-2708): In-House Research (20%), In-House Research by a Targeted Business (33%), and Research in an Area of Strategic Value (33%). A separate 33% credit for university-based research applies under Ark. Code § 26-51-1102(b).
• Administering agency: Arkansas Economic Development Commission (AEDC) approves agreements and certifies credits; the Department of Finance and Administration (DFA) processes the credit on the return.
• Rate(s) and base: In-House Research: up to 20% of incremental in-house research spending over the prior-year baseline. Targeted Business: 33% of in-house research spending each year. Strategic Value: 33%, capped at $50,000 per year. University-based research: 33% of qualified research expenditures under a contract with an Arkansas college or university.
• Refundable? No.
• Transferable? Only Targeted Business credits, which may be sold one time, after the business applies to AEDC and AEDC approves the sale (Ark. Code §§ 15-4-2708 and 15-4-2709).
• Carryforward: 9 years after the year first earned, or until used, whichever comes first.
• Annual cap / proration: No statewide cap. Strategic Value credits are capped at $50,000 per taxpayer per year. Credits may offset up to 100% of annual Arkansas income tax liability.
• Pre-approval / application and deadline: Required. A financial incentive agreement with AEDC must be signed before the qualifying expenditures are made. Expenditures before the agreement do not qualify.
• Forms: AEDC financial incentive agreement and AEDC-issued credit certification, attached to the Arkansas return; credits reported on the DFA business incentive credit schedule (AR1000TC for individuals; AR1100BIC for corporations).
• Sunset / recent changes: No sunset. No 2025 or 2026 legislation changed § 15-4-2708. HB 1521 (2025), which would have repealed related research incentives, was not enacted.

What it is

Arkansas offers discretionary, agreement-based income tax credits for research conducted in the state. Unlike states that piggyback on the federal credit, every Arkansas research credit depends on an incentive agreement signed with AEDC before spending begins. Credits are earned for up to five tax years under each agreement.

Who can claim it

• In-House Research (20%): Eligible businesses that perform in-house research qualifying for the federal research credit, approved at the discretion of the AEDC Executive Director. Agreements run up to five years and may be renewed with a new application and project plan.
• Targeted Business (33%): Businesses in AEDC's targeted business categories (for example, advanced materials and manufacturing, agriculture and food science, bio-based products, information technology, transportation logistics, and biotechnology and life sciences). The application must include a project plan with the project's intent, planned expenditures, start and end dates, and estimated total cost.
• Strategic Value (33%): In-house research in a field identified in the research plan approved by the Arkansas Science and Technology Authority board, or a Division of Science and Technology project involving an Arkansas business.
• University-based (33%): Businesses that contract with one or more Arkansas colleges or universities to perform the research.

How it is calculated

• In-House Research: Year one: eligible in-house research spending minus the baseline (in-state research claimed for federal R&D credits in the most recent year). Later years: current-year minus prior-year in-state research. Up to 20% of the increase.
• Targeted Business: 33% of the amount spent on in-house research per year for the first five tax years after the agreement.
• Strategic Value: 33% of qualifying research, limited to $50,000 per year.
• University-based: 33% of qualified research expenditures paid under the university contract.
• Qualified expenditures generally follow federal tests: wages for full-time permanent or contract employees performing qualified services, for research that seeks technological information intended for a new or improved business component through a process of experimentation.
• The same expenditures cannot be used for more than one research credit or for job creation credits.

How to claim it

1. Apply to AEDC and sign the financial incentive agreement before incurring qualifying costs.
2. Certify research spending to AEDC annually as the agreement requires.
3. Attach AEDC's approval documentation to the Arkansas return on which the credit is claimed (Ark. Code § 15-4-2708(d)).
4. To sell Targeted Business credits, apply to AEDC for approval and keep documentation of the sale.

Recent changes

• Act 881 of 2025 (HB 1922), approved April 17, 2025, effective for tax years beginning on or after January 1, 2026: Adds a 10% reduction for credits not claimed within 12 months after the end of the tax year earned and forfeiture after 24 months, but only for payroll-based job creation credits under § 15-4-2706(b) and the new headquarters relocation credit (§ 15-4-2706(f)). It does not amend § 15-4-2708 and keeps R&D credits combinable with payroll and investment incentives (subject to the no-double-counting rule).
• HB 1521 (2025): Would have repealed several unused or underused tax incentives, including research-related credits. It was withdrawn by its author on March 4, 2025 and was not enacted.
• No 2026 fiscal session legislation affecting these credits was identified.

Likely examiner questions

These questions illustrate what an examiner may ask about this credit. They are drafts for illustration and should be reviewed by a specialist before use. Most state claims also face standard questions: where the research was physically performed, how wages, supplies and contract research were apportioned between Arkansas and other locations, how Arkansas amounts reconcile to federal Form 6765, the Arkansas credit and carryforward schedule for each year claimed, and whether the claiming entity is the one subject to Arkansas tax.

1. Provide the signed AEDC financial incentive agreement and show that every claimed expenditure was incurred after the agreement date.
2. Provide the AEDC certification for each year claimed.
3. Show the baseline and current-year in-state research spending (In-House Research credit).
4. Confirm the business is in an AEDC targeted category (Targeted Business credit) and that the project matches the approved project plan.
5. For a purchased or sold credit, provide AEDC's sale approval and the transfer documentation.
6. Show that no expenditure was counted for more than one credit or for a job creation credit.
7. Provide the carryforward schedule showing the year each credit was first earned (9-year limit).
8. For university-based credits, provide the university contract and invoices.

Common weak spots

• Expenditures incurred before the AEDC agreement was signed.
• Claiming credits beyond the five-year agreement term without renewal.
• Selling credits without AEDC approval, or treating non-targeted credits as transferable.
• Strategic Value claims above $50,000 per year.
• Missing annual certification to AEDC.
• Using the same expenditures for two incentives.

Next steps

• Run a mock audit for Arkansas
• Official source: Arkansas Department of Finance and Administration, business incentives and credits (opens in a new tab)
• Run the eligibility checker
• Book a scoping call with Swanson Reed (opens Swanson Reed's booking calendar in a new tab)
• Contact us: +1 (469) 206-4335 or hello@creditarmor.ai

Important

This page is general information, not tax advice. Rules change; confirm current requirements with the state revenue agency or a qualified tax professional. creditARMOR is a free service. Passing this mock audit does not guarantee that your claim will pass an IRS or state examination. If needed, Swanson Reed can assist you with representation before the IRS. creditARMOR and TaxTrex are products of Swanson Reed.