Arkansas's longstanding donation of equipment tax credit program to encourage partnerships between industry and higher education was substantially expanded in the 2019 session to allow the credit for cash donations instead of only in-kind donations. Effective June 29, 2020, the Arkansas Economic Development Commission has promulgated rules for the program, which is fully operational. Businesses that collaborate with state community colleges or universities for training or research should leverage this program to generate income tax credits equal to 33% of the contribution.
The donation of equipment tax credit program dates to Act 469 of 1985 and has been amended over the years. The essence of the original program was a tax credit to industry for donating equipment for use in a technical course of study at a local college. (All too often, such courses had trained on obsolete equipment.) It was expanded to also apply to certain research programs. Then Act 203 of 2019 expanded the program to now allow a credit for a cash donation that is then used by the school to buy the machinery or equipment.
The way that the program works is that the taxpayer applies, then once approved enters into a financial incentive agreement. It is critical that the donation to the school or any qualifying expenditure by the school not occur until the financial incentive agreement is signed and in effect. Rule III(C). Once the agreement is effective, then the required donations and any expenditures can occur, and then the taxpayer submits proof to get the credit.
The credit is 33% of the taxpayer's contribution. The credit can offset up to 100% of Arkansas income tax. There is a 9-year carryforward for the credit if it cannot be used in the year earned.
Ultimately, any Arkansas business that is working with an in-state college or university on education or research programs should consider whether the program is a fit or could be a fit if the education-business partnership is structured appropriately.