IV. Jurisdiction Surveys

K. Arkansas

1. Introduction

The Arkansas legislature promulgated the “Arkansas Tourism Development Act” to facilitate the creation and expansion of tourism attractions in the state. The stated purposes of the Act are to relieve unemployment and increase tax revenues. The Act is detailed. It provides a definition of terms, and an explication of the evaluation and approval standards. Finally, it establishes mandatory contractual terms, and it details the sales tax credit to be awarded eligible companies for approved projects.

2. Definitions

ARS § 15-11-503 establishes definitions for the terms of the Act. The Act defines “tourism attraction project” as: 1) cultural or historical sites; 2) recreation or entertainment facilities; 3) areas of scenic beauty; 4) theme, amusement, or entertainment parks; 5) indoor or outdoor plays or music shows; 6) botanical gardens; and 7) cultural or educational centers. Excluded from the definition of “tourism attraction project” are most lodging facilities, facilities primarily devoted to retail sales, those facilities closed to the general public, facilities owned by the state, and facilities established for the purpose of conducting legalized gambling. This is not as broad as Kentucky’s definition of qualifying projects that fall under the headings of “entertainment destination centers” and “tourism attractions.”

3. Evaluation and Approval Standards

Sections 15-11-504 and 505 of the Act provide that the Director of the Department of Economic Development has the authority to establish standards for the evaluation and approval of eligible companies and their tourism attraction projects. The Act requires the director to make inquiries and request materials, which include, but are not limited to: 1) marketing plans that show the project targets at least 25 percent of its visitors from nonresidents; 2) a description and location of the project; 3) proof that the project shall cost at least $500,000; and 4) an estimation of wages to be paid, days of operation, and anticipated revenues and expenses for the project.
To approve the project, the Director must find that the proposed company and project meet the above requirements. In addition, the Director must determine that the project will have a significant and positive impact on the state, that it will produce sufficient revenues, and that it will not adversely affect existing employment in the state. The Director has the authority to make the final decision to approve or not approve a project, in accordance with the provisions of the Act.

4. The Contract

Once a project has received final approval, the Director and the approved company may enter into an agreement, which shall include provisions established by § 15-11-506. The mandatory terms are: 1) the amount of approved costs; 2) established dates of completion and length of the agreement; and 3) requirements for reporting sales tax, as well as other reports that the Director may request. The Act provides that an approved company will not receive a sales tax credit with the respect to any calendar year if: 1) following the fourth year of the agreement, the tourism project fails to attract at least 25 percent of its visitors from the nonresidents; or 2) in any year after the first year of the agreement, the project is not operating and open on the public on the regular basis. The Act establishes that the agreement is not transferable without the written consent of the Director. Finally, the Act establishes grounds for repayment of received sale tax credits and penalties.

5. The Sales Tax Credit

ARS § 15-11-507 establishes the terms of the sales tax credit. An approved company that expends $500,000 in approved costs receives a 10 percent sales tax credit. Subsequent expenditures between $500,000 and $1,000,000 results in a sales tax credit of 10 percent of the approved costs. An approved company that expends in excess of $1,000,000 in approved costs receives a 25 percent sales tax credit. An approved company is only eligible to receive such credits for two years following the execution of the agreement. This may be extended to four years, if the Director determines that failure to complete the project was due to an unanticipated and unavoidable delay, that as planned the project will take more than two years to complete, or that there was a change in business ownership or structure. An approved company may use the sales tax credit to offset all or a portion of the reported state sales tax. Unused credits may be redeemed up to nine years following their issuance. The remaining subsections provide for the reporting of all companies receiving credits, authorize the director to promulgate administrative regulations, and authorize the Chief Fiscal Officer of the State to conduct an audit.

6. Effect of the Sales Tax Credit

The Act has been in effect since 1997; however, no projects have been completed in Arkansas pursuant to the provisions of the Act. This may be due to the ineffectiveness of the Act, or the fact that Arkansas is not regarded as a prime tourism destination.