by Patricia M. McDermott, Esq.
Arkansas Governor Asa Hutchinson has signed legislation creating the Logging and Wood Fiber Transportation Job Creation Incentive Act, which creates the Arkansas Wood Energy Products and Forest Maintenance Income Tax Credit. The credit provides an incentive for businesses to locate new, or expand existing, qualified wood energy products and forest maintenance projects in Arkansas. (L. 2021, H1706 (Act 594), effective for tax years beginning on or after 01/01/2021.)
Definition. “Qualified wood energy products and forest maintenance project” means a project specified in the incentive agreement to include one or more Arkansas facilities in the same ownership group: (1) for which the taxpayer commenced construction by the date specified in the incentive agreement, but no earlier than January 1, 2020; (2) that supports the Arkansas timber industry by using low-value wood, including without limitation sawmill residuals, unwanted treetops, and damaged or diseased trees, to produce high-efficiency, high-energy wood energy products; (3) in which the taxpayer has a total investment in excess $50 million; (4) that is undertaken by a taxpayer who has entered into an incentive agreement with Arkansas in which the taxpayer commits to creating at least 100 net new full-time permanent employees with an average annual wage of at least $60,000; (5) that will provide a positive cost-benefit analysis to the state as determined by the Arkansas Economic Development Commission and the Office of Economic Analysis and Tax Research; (6) that is certified as having a closing date before December 31, 2023, for all facilities; and (7) that is undertaken by a taxpayer that has elected, by agreement with the state, for the taxpayer’s facilities to be classified as a qualified wood energy products and a forest maintenance project.
Credit amount. The credit is equal to 30% of the of the costs of wood energy products equipment purchased for use in Arkansas after the date specified in the incentive agreement by a taxpayer that is engaged in the business of collecting, separating, treating, pulverizing, drying, modifying, or manufacturing wood energy products and has been certified as owning a qualified wood energy products and forest maintenance project.
Sale or transfer. No more than $5 million of the tax credits may be sold or transferred each year. Tax credits sold or transferred for value to the state of Arkansas are extinguished upon payment of the purchase price as if claimed against the tax. If the credits are sold or transferred for value to a third party, the purchaser’s credits will not expire before the end of the third taxable year following the year in which the credits were sold or transferred for value.
Public retirement system. If the wood energy project is partially owned by a public retirement system of the state of Arkansas, the $5 million of credits per year may be purchased back by the state of Arkansas at 80% of the face value of the credits each year.
Carryforward. Any unused tax credit that cannot be claimed in a tax year may be carried forward indefinitely to apply the unused tax credit to future tax liability.