The Arkansas General Assembly, through Law 748 of 1991, established a tax credit program for facilities establishing or expanding processes that use recyclable materials.
The Recycling Tax Credit has been very beneficial to Arkansas manufacturing and processing facilities that have replaced scrap or recyclable materials instead of virgin raw materials.
Facilities that establish or expand processes that use recyclable materials are potentially eligible for a 30% tax credit on machinery or equipment purchases. See Ark. Ann.Code § 26-51-506, et seq.
The tax credit is granted for waste reduction, reuse or recycling of equipment. These terms are probably broadly defined as follows:
. . . new or used machinery or equipment located in Arkansas on the last day of the taxable year that is operated or used exclusively in Arkansas to collect, separate, process, alter, convert, or treat solid waste so that the resulting product can be used as material raw material or for productive use or to manufacture products containing recovered materials.
The tax credit is equal to 30% of the equipment or machinery, plus transportation and installation by outside contractors.
Note that waste reduction, reuse or recycling equipment must be used exclusively in the collection, separation, treatment, modification, conversion, treatment or manufacture of products containing at least 50% reclaimed materials . In addition, of these recovered materials, at least 10% must be post-consumer waste.
The Arkansas Department of Energy and Environment – Division of Environmental Quality (“DEQ”) administers this program in conjunction with the Arkansas Department of Finance and Administration (“ DF&A”). Staff from the DEQ’s Office of Business Services administer the program for the agency.
DEQ initially reviews tax credit claim submissions and determines eligibility. The regulations promulgated by the DEQ to implement this program are found in Arkansas Pollution Control and Ecology Regulation 16. If the machinery or equipment is deemed eligible, the DEQ provides certification to the DF&A.
DEQ now has over 30 years of experience operating this program. Accordingly, agency staff have noted some suggestions for tax credit claimants to facilitate a more efficient certification process.
It is particularly important to remember that an application for certification must be filed with DEQ during the taxation year in which the equipment is purchased, or the last invoice is paid, or the equipment is put into operation; whichever is later. See Reg. 16.201(A). Therefore, DEQ staff noted as an example that if a taxpayer purchases equipment at any time during the calendar year (January 1 to December 31), the taxpayer has until the 31 March of the following year to file a tax credit certificate for this equipment (i.e. 90 days after the end of the calendar year).
DEQ staff suggest that it is important that taxpayers do not wait until the last minute to apply for certification. Three reasons are given for this suggestion:
- If the taxpayer applies for tax credit certification as soon as the purchase of machinery or equipment is completed, he must have a certification certificate before the arrival of tax filing season.
- If the taxpayer waits until the March 31 deadline, they will most likely be required to file an extension for state taxes, as they typically require around 90 days to complete the certification process. If the taxpayer waits until tax filing season to apply for an attestation certificate, it may be late June or later before an attestation certificate is received from the DEQ.
- DEQ staff process requests on a first-come, first-served basis. After January 1, staff are usually very busy processing applications. In other words, there might be a few certification requests before one request.
Applicants can apply online by accessing the e-portal application here.