15-4-3305. Award of an equity investment incentive tax credit.

15-4-3305. Award of an equity investment incentive tax credit. (a) A person or company that purchases an equity interest in a qualified business under § 15-4-3303(a) in any of the calendar years 2007 — 2028 is entitled to a credit against any state income tax liability that may be imposed on the person or company for any tax year, beginning in the tax year in which the equity interest was purchased and for a period not to exceed nine (9) years beyond the tax year in which the equity interest was purchased. (b) The credit against state income tax liability shall be determined in the following manner: (1) The credit shall not exceed thirty-three and one-third percent (33 1/3%) of the actual purchase price paid for the equity interest to the business, less any fees or commissions to underwriters or sales agents paid by the business; (2) In any one (1) tax year, the credit allowed by this section shall not exceed fifty percent (50%) of the net Arkansas state income tax liability or premium tax liability of the taxpayer: (A) After all other credits and reductions in tax have been calculated; and (B) Before the credit allowed by this section is applied; (3)(A) Any credit in excess of the amount allowed by subdivision (b)(2) of this section for any one (1) tax year may be carried forward and applied against Arkansas state income tax for the next-succeeding tax year and annually thereafter for a total period of nine (9) years next succeeding the year in which the equity interest in a business was purchased, subject to the provisions of subdivision (b)(2) of this section or until the credit is exhausted, whichever occurs first. (B) The credit allowed by this section shall not be allowed for a tax year ending after December 31, 2037; (4) If the total amount of credits applied for under this subchapter for the year exceed the cap stated in subsection (f) of this section, the Arkansas Economic Development Commission, when allocating credits under this subchapter for the particular applications that would exceed that cap and in order to not exceed the cap, shall first award credits to investors taking an equity interest through an equity purchase before credits may be allocated to investors that use a convertible financing structure for the investment; and (5) An original purchaser of equity interests who seeks to qualify for the income tax credit or premium tax credit provided in this section shall obtain and attach to the income tax return or premium tax return for the years the credit is claimed a certified statement from the business stating: (A) The name and address of the original purchaser; (B) The tax identification number of the person entitled to the credit; (C) The original date of purchase of the equity interest; (D) The number and type of equity interests purchased; (E) The amount paid by the original purchaser for the equity interest; (F) The amount of the tax credit associated with the purchase of the equity interest; and (G) The amount of dividends and distributions previously paid by the business to the purchaser. (c)(1) A transferee from an original purchaser is entitled to the tax credit described in this section only to the extent the credit is still available to and has not previously been used by the transferor. (2) A transferee of equity interests or tax credits who seeks to qualify for the income tax credit or premium tax credit provided in this section shall obtain and attach to the income tax return or premium tax return for the years the credit is claimed a certified statement from the business stating: (A) The name and address of the original purchaser and all transferees; (B) The tax identification number of all persons entitled to any portion of the original tax credit; (C) The original date the equity interest was purchased; (D) The number and type of equity interests purchased; (E) The amount paid by the original purchaser for the equity interest; (F) The amount of the tax credit associated with the purchase of the equity interest; (G) The amount of the tax credit associated with the original purchase used by all previous owners of the equity interest or tax credit and the remaining amount of the tax credit available for use by the transferee; and (H) The amount of dividends and distributions previously paid by the business to the original purchaser and all transferees. (d)(1) If the owner of an equity interest in or a tax credit issued by a company is a pass-through entity for tax purposes, such as a limited liability company or a partnership, then the owner of the pass-through entity is entitled to the tax credit described in this section. (2) If a pass-through entity entitled to a tax credit under subdivision (d)(1) of this section is owned by two (2) or more persons, then the tax credit may be allocated among the pass-through entity owners in the method selected by the owners as described in the governing documents of the pass-through entity or by other written agreement among the owners. (e)(1) For the purpose of ascertaining the gain or loss from the sale or other disposition of an equity interest in a business, the owner of the equity interest shall reduce the owner's basis in the equity interest by the amount of cash received from selling the tax credits and the tax credits previously deducted under this section. (2) However, sale or other disposition under subdivision (e)(1) of this section does not include a transfer from the holder of an equity interest to the business in liquidation of the equity interest. (3) This reduced basis shall be used by the original purchaser or transferee when calculating tax due under the Income Tax Act of 1929, § 26-51-101 et seq. (f) The total cumulative amount of tax credits available to all purchasers of equity interest in qualified businesses under this section in any calendar year shall not exceed six million two hundred fifty thousand dollars ($6,250,000). (g) The original investor earning tax credits under this section may sell its tax credits: (1) Only one (1) time, in whole or in part, the balance of which shall be used by the original investor within the time frame allowed under this subchapter; and (2) At any time before the tax credits are exhausted or expire.