Arkansas Tax Back Program: Eligibility, Investment Tiers, and Claims

The Arkansas Tax Back Program refunds the state and local sales and use taxes a qualifying business pays on construction materials and on machinery and equipment when it builds, expands, or modernizes a facility in the state.¹ It is not a standalone benefit. To receive the refund, your business must also sign a job-creation agreement under Advantage Arkansas or Create Rebate, and it must hit investment, payroll, and wage targets or repay every dollar refunded.

What the Refund Covers

Two kinds of purchases qualify: construction materials used to build, add to, modernize, or improve the building that houses the qualifying business, and the machinery and equipment located in or connected to that building.¹ Think lumber, steel, concrete, wiring, and production equipment that stays permanently at the project site.

Two carve-outs reduce what you actually get back. The refund excludes the portions of state sales tax dedicated to the Educational Adequacy Fund and the Conservation Tax Fund, so the refundable state portion is less than the full 6.5% Arkansas rate. The statute also excludes routine operating expenses and replacement purchases of items already bought for the project, unless the replacements are necessary to finish the project.¹ Office supplies, portable tools, and ongoing repair parts will not qualify.

Local sales and use taxes can be refunded too, but only from the municipality or county where the business is located, and only if that government’s endorsement resolution authorizes the refund of its local taxes.¹

Who Qualifies

The Consolidated Incentive Act limits eligibility to nonretail businesses engaged in commerce for profit, and it defines eligibility by industry category:²

Manufacturers classified in NAICS sectors 31–33.
Software design, digital content, computer processing, and information retrieval businesses. These must earn at least 51% of sales revenue from out of state and pay an average hourly wage above 125% of the lesser of the county or state average.
Film and digital production businesses, under the same out-of-state revenue and wage rules as software.
Distribution centers and intermodal facilities.
Office sector businesses.
National or regional corporate headquarters under NAICS 551114.
Physical, engineering, and life sciences research and development under NAICS 541713, 541714, and 541715.
Scientific and technical services, which must earn at least 51% of revenue from out of state and pay above 150% of the lesser of the county or state average wage.

Classification happens during the application, when the business submits its NAICS codes to the Arkansas Economic Development Commission.

Beyond industry eligibility, you also need a job-creation agreement. The business must sign an Advantage Arkansas or Create Rebate agreement within 24 months after signing its Tax Back agreement, or it must have signed one within the previous 48 months.³ A pure construction or equipment project with no new jobs will not qualify.

Minimum Investment by County Tier

Arkansas sorts counties into four incentive tiers each year based on poverty rate, unemployment, per capita personal income, and population growth, with higher-numbered tiers representing more distressed counties.⁴ Because tiers are recalculated annually, confirm your county’s current assignment on the AEDC incentive tier map before you plan around a threshold.

The Tax Back minimum project investments are:¹

Tier 1 counties: at least $500,000
Tier 2 counties: at least $400,000
Tier 3 counties: at least $300,000
Tier 4 counties: at least $200,000

These numbers are separate from, and smaller than, the investment and payroll thresholds required to qualify for the companion Advantage Arkansas or Create Rebate program. Because Tax Back requires participation in one of those programs, you must meet both sets of thresholds. In Tier 1 counties the companion program requires at least $5 million in investment and more than $2 million in annual payroll for new full-time employees; in Tier 4 counties it requires at least $2 million in investment and $800,000 in annual payroll.¹

How to Apply and Claim the Refund

Two agencies run the program. The Arkansas Economic Development Commission approves applications and signs the incentive agreement. The Department of Finance and Administration processes the refund claims after you pay the tax.

Secure the Local Endorsement Resolution First

Before the state will process your application, you need an endorsement resolution from the city council or county quorum court where the project will sit. The resolution must formally endorse the business’s participation in the refund program and specifically authorize DFA to refund the local sales taxes.¹ Local officials will want to see project scope, expected jobs, and the revenue implications of giving up local tax, so start this conversation early. Without the resolution, the application cannot move forward.

Apply Through AEDC

Submit the application to AEDC with a detailed breakdown of estimated project costs, an equipment list, the project location, projected job creation, the endorsement resolution, and documentation that the business meets the qualification criteria for the Advantage Arkansas or Create Rebate program it is pairing with.³ Once approved, the business and the state sign a financial incentive agreement setting out the investment commitments, payroll targets, wage requirements, and refund terms.

File Annual Claims With DFA

After you pay sales or use tax on a qualified purchase, you file for the refund annually with DFA using three documents:⁵

Form Tax Back 1000, the annual refund request, signed by a partner, corporate officer, or sole proprietor.
Schedule A, listing every qualified tax-paid purchase during the calendar year.
Form Tax Back 1100, a notarized waiver required when the taxes were paid by a contractor or developer on the business’s behalf. The original goes with the initial claim, and copies accompany each later filing.

The tax total on Form 1000 must match the total on the attached Schedule A forms, and only the local tax amounts covered by the endorsement resolution can be included.⁵

Deadlines That Can End a Claim

Three timing rules deserve calendar attention. The business has four years from signing the financial incentive agreement to reach its investment threshold.⁴ Every refund claim must reach DFA within three years of the qualified purchase; miss that window and the statute says the claim “shall be denied.” And if the project changes after approval, AEDC can issue a written amendment to the project plan, but it cannot approve an amendment that increases costs by more than 25% above the original plan.¹ Build realistic numbers into the initial plan rather than counting on later increases.

When You Have to Pay It Back

If the business misses its commitments, it does not just lose future refunds. It owes back everything already received. The Consolidated Incentive Act rules cover three failure modes:⁶

Missing the investment threshold before the four-year deadline requires repayment of all incentives received under the agreement.
Never reaching the required annual payroll for new full-time employees requires repayment of all incentives received. If payroll falls below the threshold after the business initially qualified, incentives are terminated unless the business files a written extension request with AEDC explaining why.
Failing to reach the required average hourly wage in the agreement requires repayment of all incentives received for which the wage threshold was not met.

The financial incentive agreement includes clawback provisions enforcing these rules, so treat the investment, payroll, and wage numbers in the agreement as binding obligations.

Federal Tax Impact

Sales tax refunds received through the program can affect your federal taxes. The IRS treats sales tax as part of an asset’s cost, so when a business has already included sales tax in the depreciable basis of equipment or a building, a later state refund of that tax may require a basis adjustment on the federal return. Work with a tax professional to determine whether any of your Tax Back refunds reduce basis on items already placed in service.

1
Justia Law. Arkansas Code 15-4-2706 – Investment Tax Incentives
2
Justia Law. Arkansas Code 15-4-2703 – Definitions
3
Arkansas Economic Development Commission. Investment Incentives
4
Arkansas Economic Development Commission. Job Creation Incentives in Arkansas
5
Arkansas Department of Finance and Administration. Consolidated Incentive Act of 2003 Tax Back Program General Instructions
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Arkansas Economic Development Commission. Consolidated Incentive Act of 2003 Rules