The Incentive Edge: KMK Consulting - Incorporating Incentives | Incentive Update – Arkansas Data Center Sales and Use Tax Exemption
KMK Consulting — Incorporating Incentives
Halfway through 2025, the U.S. economy continues to be defined by uncertainty. In response, companies are prioritizing flexibility, risk management, and innovation while monitoring policy developments for stability.
Despite economic turbulence, business investment has rebounded from this time last year. According to a recent public study, overall investment growth stands at ~3.4%. Tariffs have impacted small businesses, forcing some to reallocate resources from innovation to compliance, delaying product launches, and laying off staff. Workforce challenges persist for many industries and businesses of all sizes, with aging demographics, stricter immigration policies, and technological advances being leading factors to this national challenge. Regardless of regulatory shifts, sustainable initiatives continue gaining traction, as companies which are integrating ESG strategies are reaping financial and reputational benefits.
As companies navigate these initial 2025 trends and look to expand or relocate within the United States, understanding the landscape of economic incentives is crucial. Federal and state programs can help shape investment decisions across industries. Here are KMK Consulting’s key 2025 incentive considerations:
- Consider How Federal and State Incentives Can Support Your Investment – Last year, over $50 billion in economic incentives were awarded across all industries and project types. This supported over $400 billion in company investment commitments and the creation of close to 500,000 jobs. While nearly 80% of the incentive value originated from the federal government, discretionary state incentives also played an important role in company decisions. When developing your budget, don’t omit the possibility of incentive support from various economic development partners.
- Manufacturing Remains a National Focus for Incentive Support – Advanced manufacturing continues to generate considerable, annual incentive support. Capital investment commitments totaled over $325 billion last year, leading to an anticipated 170,000 jobs being created and highlighting its strategic importance in the United States. If your business is within this sector, determine how incentives could play a positive role in your project by delivering short- and long-term savings.
- Know How State Incentives Differ - State incentive programs vary widely. Each state can offer unique programs, ranging from tax credits, abatements, and exemptions to investment or workforce-based grants. Deal flow was strongest in the Midwest, as states in this region tend to be more aggressive to garner business growth; however, the tools they leverage to generate incentive support are dramatically different. Before initiating incentive discussions, be sure to do a complete analysis of the business landscape for states your business is contemplating investing in. Then, see how incentives can mitigate your potential tax burden or return invested dollars via grant incentives.
- Don’t Rule Out Your Industry – Although companies in the advanced manufacturing sector generate strong incentive support, other key industries receive focused support. Company initiatives focused on research and development (R&D), business services, data centers, and infrastructure projects also benefit from targeted incentives, largely due to their investment commitments, infrastructure needs, or employee-focused operations. Strategic relocation of operations can also produce incentive results. If you’re expanding, relocating, or opening a new location, work with our team to help think through how a state’s business incentive climate can attract your strategic investment.
Incentives Continue to Play an Important Role in Business Decisions – While the Covid-19 pandemic reduced national incentive deal flow, in the last few years, total incentive value and deal flow has improved dramatically. As we move through 2025 and approach 2026, strategic planning around economic incentives will remain vital for companies aiming to maximize ROI and secure competitive advantages. Staying informed on evolving federal and state programs will be essential for successful project development and expansion within the U.S. market. Work with our team at KMK Consulting to understand the full incentive landscape and how it can play a positive role in your strategic initiatives.
Incentive Update — Arkansas Data Center Sales and Use Tax Exemption
States and local jurisdictions continue to evaluate how to best compete for business growth with incentives. Arkansas is one state that’s increasing their efforts by expanding tax exemptions to enhance data center growth.
Program Overview
With the passage of House Bill 1444, effective April 10th, 2025, Arkansas is expanding sales and use tax exemptions for data centers to attract large-scale, high-tech company investment and support long-term economic growth across the state.
The bill updates key definitions, broadens eligibility for tax breaks, and introduces a tiered system for facilities based on company investment and workforce commitments.
There are many benefits of the expanded program, including:
Broadened Sales & Use Tax Exemptions
- Applies to computing hardware (servers, routers, switches), software, and licensing
- Includes infrastructure such as cooling systems, backup power, environmental controls, and cabling (even when located outside the facility)
- Covers installation, maintenance, and upgraded labor services
Expanded Definition of “Eligible Data Center Costs”
- Now includes expenses for land, buildings, renovations, permitting, leasing, and engineering services. These types of costs are eligible for inclusion in the investment threshold calculation (i.e., toward the $100M or $2B), but they are not necessarily exempt from sales/use tax unless explicitly covered (e.g., hardware, services, infrastructure).
Tiered Incentive Structure
- Qualified Data Centers
- $100 million investment within 5 years
- Single site
- Full sales/use tax exemption
- Qualified Large Data Centers
- $2 billion investment within 10 years
- $3 million in payroll compensation
- Must operate multiple non-adjacent facilities in one center, connected via fiber
- Full sales/use tax exemption, but on a larger scale
Regulatory Safeguards
- Facilities that fail to meet investment or compensation requirements may lose exemptions; however, sub-facilities may still qualify independently if they meet the standards on their own
To qualify for exemptions under HB1444, companies must:
- Apply through the Arkansas Department of Finance and Administration through its portal
- Undergo a cost-benefit analysis by the Arkansas Economic Development Commission (this is a pre-condition)
- Prepare a detailed investment plan, including payroll expectations for direct and indirect employees, have documentation of potential expenditures, and understand annual reporting requirements
- Receive a financial incentive certificate
- If approved, ongoing annual compliance and reporting is required
This program becomes incredibly competitive when compared to similar programs offered in other states, as the investment threshold ($100M) is lower than other states to become eligible for tax benefits, the exemption includes services, not just equipment, and there is no job creation requirement for the standard tier.
If you’re interested in this program, or other state programs that look to attract strategic company investments, please reach out to our team at KMK Consulting.
James J. McGraw, Jr.
President & CEO
513.639.3968
jmcgraw@kmklaw.com
Thomas G. Seward, Jr.
Managing Director
513.639.3970
tseward@kmklaw.com
Brandon E. Simmons
Managing Director
513.639.3971
bsimmons@kmklaw.com
Ian M. Smith
Director
513.579.6570
ismith@kmklaw.com
