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Some Arkansas companies received thousands of dollars in tax credits that they should not have received while working on economic incentive projects, Arkansas Economic Development Commission administrators told lawmakers Friday.
Under the Consolidated Incentive Act of 2003, businesses can be rewarded for economic development projects by receiving income tax breaks if they submit proof of what they have spent on wages and benefits to the AEDC. An analysis of the tax credits the commission issued revealed that some companies received credits despite insufficient documentation or due to other errors between 2013 and 2022, according to a report the Legislative Joint Auditing Committee heard Friday.
AEDC is working to ensure this doesn’t happen again, Deputy Director Jennifer Emerson said.
“In 2021, we did recognize that we had some inadequacies in our internal controls and [since then] have taken some steps to address those inadequacies,” Emerson said. “We have formed a committee of internal employees to go over these reports as they are submitted by incentive recipients so that we make sure there are many eyes on these before we issue tax credits going forward.”
The report covered a decade of economic incentive projects from Jan. 1, 2013 to Dec. 31, 2022, analyzing whether they have created a benefit to the state. Arkansas awarded more than $667 million in incentives statewide over that time period, with most going to projects in Central and Northwest Arkansas.
There were five instances of erroneously issued tax credits, according to the report:
- One company received $1.2 million in tax credits “based on $3.5 million in stock awards and stock options,” but the company did not actually have stocks or stockholders.
- Two companies received $2.3 million in tax credits despite insufficient detail in their expense reports.
- A company received more than $325,000 in tax credits despite “inadequate supporting documentation.”
- Five companies received nearly $439,000 in tax credits despite no supporting documentation at all.
- A calculation error led AEDC to award nearly $89,000 more than was allowed for one company.
Emerson said she does not believe any tax credits “were actually issued without documentation,” but instead AEDC staff did not properly record the documentation that companies provided.
AEDC has asked companies to resubmit the necessary information and has already received some responses, Emerson said.
“Anyone that we do not hear back from, we are going to give that list to [the Department of Finance and Administration] so that they can help us potentially reclaim some of those tax credits,” she said.
The level of benefit the state received from economic development projects varied in the decade reviewed by the report. Research and development programs, which received most of the erroneously issued tax credits, tend not to result in a positive cost benefit, according to the report.
Several tax credit programs have benefited the state, including the InvestArk Program Sales and Use Tax Credit, which has not accepted new projects since 2017. The program benefited businesses that invested at least $5 million to build or expand in a single location.
In the past year, 72 companies across the state spent more $2 billion in tax credit-eligible expenses and created 757 new jobs in the process, according to the report.
Rep. Howard Beaty, R-Crossett, asked Emerson and AEDC executive director Clint O’Neal if sparsely populated areas receive “more bang for their buck” from economic development projects than more populous regions of the state do.
O’Neal said AEDC is more likely to “lean in” and boost projects in rural areas, such as South Arkansas, which includes Beaty’s district.
“Would 50 jobs in Crossett be more meaningful than 50 jobs in Little Rock? Absolutely,” O’Neal said.
Beaty said he appreciated this in light of South Arkansas’s population decline in recent years.
“The only way that we’re going to attract folks to come back into those communities… is with good jobs and good economic development,” he said.